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I did some math today and I find the results disappointing. But the truth is, I don't have a standard to compare them against. Could you comment?
*I spend on average $0.14 per visitor
*I have 1 buyer for every 162 visitors
*The average purchase price is $65.00
That means that out of the $65.00 I have earned I spent about $22.00 on marketing. That is 34%.
Is this normal, or am I wasting my time?
Thank you for your comments (however brutal).
Anyway, I think I'm breaking even, maybe making a little $$$ which get reinvested into the business. But what is the golden standard? This much for advertizing, this much for whatever...?
Anyway, the customers you acquire now may come back again to make a purchase. Maybe you should capture the vistors email addresses and send "special offers" newsletters.
You also have other options -
- Reduce the CPC further (ROI is more important than traffic)
- Add more keywords to make up for the lost traffic.
- Check out other PPC search engines
can you see varying conversion rates on different sources / word combinations?
PS: good or bad, you've got a benchmark to start from, and many don't care enough to look - so you're ahead of the game in this regard.
If a customer is likely to make 10 purchases from you over the next two years, you can afford to lose money the first time they come- assuming you don't have to keep makrteing them the way to get them to come back. If, on the other hand, they only buy once, you better make a decent profit on that one sale.
1 out of 162 sounds low, but it really depends what you are selling, and 1 out of 6.7 sounds high, but again it depends. Personally, I get around 1 out of 45 buying.
Your marketing costs as a percentage of your sale price also depends entirely on what your other product costs are. If you ar selling a download, with effectively zero product cost, and only the credit card fee to pay, then you can easily spend 50% on marketing and still do well. If you are selling clothing, you should hope your marketing costs are well under 20%.
Again, figure out the customers lifetime value, and the lifetime cost of aquiring each customer, and you should get a good feel for where you're at.
However, from my own experience in a different businesses this is highly likely to result in a case of "perfect math" not fitting in with the way the real world works.
We spent around GBP250k p.a. advertising on TV for a product where we were the only advertiser. As the results were so fantastic, we increased the spend the following year but the returns were less than half the previous year's.
The reason? - our competitors had realised that we were on to a good thing and we were then advertising as a smaller fish in a now increased pond.
We also had a similar experience with press advertising - the ROI from one ad does not double if you double the ad's size - our advertising agency had a great term for this:
"The law of diminishing returns".
Another thing to consider - if you grab new customers from new marketing methods, is their loyalty likely to be the same in terms of repeat business? Answer - you don't know.
My simple conclusion for this question is in line with Shak's theory - if you're making a god profit then don't bother wondering how your competitors compare. Ever see a marathon winner looking behind himself?
If you aren't vigilant about sending them reminders, coupons, and special offers, and asking them to refer you to friends, and offering frequent shopper programs and so on, then of course they aren't going to necessarily come back, and every sale you make is going to cost you the same high price you needed to get the first sale from them.
The lifetime value of the customer assumes you will make a reasonable effort to continue to get the custeomr to buy from you- which is proven to be much more likely after they have bought once, however you still have to work at it.
The advantage is, once they've bought once, you have their name and can contact them directly, which should cost you close to nothing compared to attracting someone who has never bought before.