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It is not any different than how you would evaluate what you would be willing to pay for a magazine ad or a tv commercial. What do you need to get in return to justify the expense? Or, more likely, what expense can you justify based on the expected return?
With the current trend toward PPC generating much angst amongst webmasters on this board and other places, understanding what a visitor is worth to you is becoming increasingly important.
It really does not matter what "other" people are paying for a visitor. What is that visitor worth to you? Look at your own average profit per sale vs. average sale per visitor. How much can you justify to get a visitor, knowing the average visitor will spend X (although some will spend nothing, and others might spend 100X)?
Only you know the value of a customer to your business!
Any realistic numbers out there on clickthrough percentage for 1,2, and 3 positions?
It is very difficult to make generalizations across industries, general terms, and specific keyword phrases.
I usually try manipulating the term's position and keeping it there for a (non-holiday) week to compare clicks from the previous week at the different position. The variance for each term is significantly different. Takes a lot of research, but it is necessary for maxing your ROI.
People with a general interest tend to use single word searches and robotically click on #1. The sales conversions for those people are usually quite low.
Case in point:
A client sells perfume. The single search "perfume" is a very highly searched term.
Now take a multiple search "Calvin Klein CK One Perfume" and wordtracker can't even come up with a count as it's searched so infrequently.
In not only conversion rates but in actual hard sales the latter genre of listings outperform the former.
The exception to this is during Holiday season buying when people who usually don't buy on the internet do so by searching single terms.
Another variable in the equasion is where people visit from. i.e. AOL - less sophisticated buyers.