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Frozen out by the high CPC -- what's wrong with me?

     
4:37 pm on Mar 2, 2004 (gmt 0)

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All the storms in the paid search world just wash over me, since I can't afford any program except Google Adwords. I would be curious to hear others' opinions -- is there something wrong with my business model? I will describe it.

I sell a variety of decorative wooden boxes online. My gross margin is about 35%, and average sale is about $35. So I gross a bit over $12 per sale. My conversion rate is about 1% (i.e. for every 100 distinct visits, I get one sale). 1% seems depressingly low, but I always understood it to be typical.

So my gross profit (before paying for my server and other fixed expenses) is about twelve cents per visit. Needless to say I don't bother with Site Match at 15 cents per click (if lucky) or Yahoo Shopping at 17.5 cents per click minimum. Even Overture regular ppc, with a 10-cent minimum, makes no sense, because I do my own fulfillment and it takes time, so I can't take a razor-thin profit and make it up on volume.

Here are some obvious hypotheses about why I am left out of the game:

-- my gross margin is too low. I need to raise prices 10% and scrap my free shipping policy, in effect raising the cost to the consumer about 25%. Alas, cute wood boxes are not a necessity like toilet paper or viagra. I know from direct retailing that people are price-sensitive in regard to this product. Raising prices would drive off some customers (which is to say, drop my conversion rate even more.) I would have to assume that expanded advertising would bring in enough rich, price-who-cares customers to make up the difference.

-- My conversion rate is too low. Maybe other people can sell products like this with a 4-5% conversion rate. Maybe my site is not good, or products unappealing. (Actually, I think my site is OK, falling within the range of decent ecommerce sites in terms of usability and look; and the product sells well in physical retail situations. Perhaps it just does not translate to the web.)

-- I have an oddball product, which due to quirks of its own, is difficult to market through ppc advertising. For example, I get a better ROI advertising unfinished boxes, because people actually seek them. No one ever sits down at the computer, however, and says "I need a wood box with penguins on it." I can advertise a penguin box under the keyword "penguins" and get lots of curious people to look at it, but the conversion rate is much lower even than 1% and I lose money even with five-cent clicks at Google.

-- The mainstream web is increasingly not about products or businesses like mine. Other business types (travel, real estate, lawyers, whatever) have much better margins or conversion or average sale, so they can pay 15+ cents per click and still make plenty of money online. I need to either get a real job, or find a way to market my product on the margins of the net.

I must say that I am eternally grateful to Yahoo, because I got into the directory many years ago when it was still free. I wouldn't mind paying them something, since they were not put into the world to do me favors. But every product they offer is too expensive by a factor of four, and all I can do is wait quietly until some year I am squeezed out altogether.

Opinions welcome.

6:12 pm on Mar 2, 2004 (gmt 0)

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You're right. My first impression was that, Okay, $49/$29 a year, a bit more expensive, but still worth it. Then I saw $.15 per click and I was immediately ruled out. Products with an average ticket of $50 or less can make CPC work if the average CPC is near the minimum ($.05 to $.10), but at $.15 per click, many products would not be profitable.

I guess my next questions are, What happens to the Inktomi paid inclusion program? Will it run alongside Yahoo's program or be replaced? What will MSN use? And how will Yahoo Search handle regular, free listings, i.e. frequency of updates, number of pages, depth of crawl, etc.?

Yahoo appears to be de-emphasizing objective results and is now arguing they have more relevant results. This may be true: a company on paid inclusion, optimizing frequently to found for a particular search term, may be more relevant, but the choices may be more limited for the searcher. Will a non-paid inclusion site be found or be able to compete? And mixing in XML feeds is an issue just waiting to explode.

So here's the differentiation to the searcher: Yahoo will provide you with search results more closely matched with your search but you may not have as many choices and the higher ranking results may be there because they pay Yahoo for a greater opportunity to influence their position. Google will provide you with objective results and more choices, but money does not influence results and you may have search a little deeper to find what you want.

Studies keep indicating searchers want relevant results most, but I think future surveys need to determine how much objective results, i.e. in *no way* influenced by payment, are valued.

One more thing. It seems to me many people are searching for low priced products, like your boxes or many other consumer products. Will they be able to find them?

[edited by: bmsd33 at 7:04 pm (utc) on Mar. 2, 2004]

6:32 pm on Mar 2, 2004 (gmt 0)

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The first change I would try to make is increase your conversion rate.

A 1% change will allow you to double your PPC bid and retain your same profit margin. A 2% change allows you to make more money if you only double your PPC bid prices. The higher the conversion rate, the more options you have.

The second option is to raise your prices. Do your competitors offer the same product at a cheaper or more expensive rate? Are your rates comparable?

Maybe you could choose just one product to raise your prices on and see if your conversion rate stays the same.

6:44 pm on Mar 2, 2004 (gmt 0)

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I can see that soon it will cheaper to open a shop, rather than try to compete on the web, ironic when you think about it, we will have come full circle.

There was a time that selling on the web was to be the way to go, and a cheaper option and a chance for the creative or those that whish to sell and have a business, the chance to do that with the Web.

How many times have you heard on the TV Ads "we can give you a better price because we are internet based company" ahhaha, what a joke that's turning out to be, that's out the window now, I cannot imagine having to pay out so much money just to get people to come and look, so my advice is get ready to open a shop selling those boxes etc, and advertise in the local papers, local radio, and back to basics with flyers etc. I think you would do better than the current 1%

Its not all doom and gloom just yet, but just how many others are gonna copy this " lets make them pay & even pay to pay "

6:44 pm on Mar 2, 2004 (gmt 0)

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you can also expand your distribution system. aside from merely selling in your e-commerce site, why not try alternative mediums like ebay? that would be a perfect market for items like yours. check how the fees you will incur from selling on ebay compare with the amount you pay per click on the search engines. then do both.
6:49 pm on Mar 2, 2004 (gmt 0)

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>A 1% change will allow you to double your PPC bid and retain your same profit margin.

Be careful with statistics :)

I presume by "a 1% change" you mean an increase in the conversion rate from 1% to 2%. Actually, that would require a 100% change, or doubling, of the conversion rate.

6:59 pm on Mar 2, 2004 (gmt 0)

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Mardi_Gras
You're right - that's what I meant.

You can make stats tell you anything, even if its not the truth - very good advice - be careful with stats :)

7:03 pm on Mar 2, 2004 (gmt 0)

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Do you cookie visitors and include later sales in the conversion rate? My stats indicate there are as many people who come back later to buy, the majority with a day or 2, as those who purchase on the first visit. So, if you are basing the conversion rate only on sales made during the first visit, you may actually have a higher conversion rate.
7:05 pm on Mar 2, 2004 (gmt 0)

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boxman, I hear ya...

My two cents: search is not meant for you, what you need is browsing. Searchers will never turn their emotional response to your product into keywords, in advnce of seeing the product.

The world needs Shopping Directories way more targetted than Yahoo! Shopping and Froogle. Lifestyle directories practically, where people accumulate links to their taste and distribute that info to a like-minded audience. I wish more bloggers would turn to ecommerce, because they know their audience, in fact they have a lot of influence over their audience's buying decisions.

Personally, I would love it if there was a Decorative Box Directory I could go to when I want to buy my wife a present. I think those must be hard to make money off of, and webmasters with that inclination turn to affiliate programs instead.

This isn't what you asked about, but have you thought about an affiliate program?

7:14 pm on Mar 2, 2004 (gmt 0)

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Have you increased the price of your boxes?

What if you sold your boxes for $45? If it doesn't hurt your conversions then that could be a great thing for you. I know in some cases increasing price actually increases conversions as well. I'd try a week long test and see how it affects conversions.

11:24 am on Mar 3, 2004 (gmt 0)

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My 2 cents. Buy a copy of Jacob Nielson's usability book and Steve Krug's "Don't Make Me Think". After reading them see if there is anything you can think of to do to increase your conversion rate. Try your ideas one at a time and see if each has a positive impact, if so keep it. From there get some of your friends to come over, or go over to their house, and do some informal usability testing on your site. Make changes to address problems and go back and do some more tests, and keep on going. In the meantime you may want to read up on sites like [uie.com...] If by doing this you can get your conversion rate up you may have way more options.

I wouldn't drop free shipping and I agree with testing raising prices.

ps you may try giving away a few of your boxes to get people to review them on their sites. We get much better returns for the money doing that than with ppc advetising.

11:40 am on Mar 3, 2004 (gmt 0)

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After looking around what I am almost positive is your site here are a few quick suggestions. Write about how you make the boxes, the process behind it, the wood used, the tools. And who are you and how long have you been doing this? Also you descriptions of the boxes are usually only one or two sentences. I would honestly like to know more about the designs, the paints used etc... You aren't just selling a box, it's also the idea of how the box was made, you, etc....

And FWIW. My company sells its product at shows too. For some items prices are 20% higher on the web, and there are no problems.

Back to my own site.

 

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