CPC vs. CONVERSION RATE

[sourcecode]

Ok, bare with me I'm going to lay this question out the best I can...

In one of the Warrior Threads I was giving a rule of thumb to go by before starting a PPC campaign on adwords, or any other network for that matter. The rule of thumb was a mathematical equation that does make sense.

1 out of 100 clicks = a sale [ worse case scenario ]

So say your cost per click is $.30, .... $30 would get you 100 clicks. And you make one sale and get a commission of $30 you break even. I was told to play it safe never start a PPC campaign where your cost per 100 clicks exceeds you commission amount for one sale.

Now, on Google keywords tool... it gives Estimated CPC for first page placement...or position 1-3. Some of the prices like mesothelioma are $25 a click. But lets say you want to market a product where you get $80 a sale in commission, but that market or keyword for that product is showing in estimate of $5 a click, where as 100 clicks would cost you $500. Now, going by worse case scenario, you make 1 sale out of a hundred clicks getting you $80, but you just spent $500 lol....

There are 3 possibilities out of this.

1. People really aren't paying $5 a click
2. They are making more than 1 sale per hundred clicks, enough to cover the cost of 100 clicks , plus more.
3. Both of the above

So... here is my question, actually a few. Even with QS's of 7 and 8, if I run a campaign for this particular product, I will be paying $5 so do I need QS of 10 to lower the CPC?

Like the example above.... where my cost per 100 clicks = $500, and a 1 sale gets me $80, I would need to make at least 7 sales per 100 clicks to make money. How do you know you would make 7 sales per 100 clicks without testing it and lose money? ROFL

I'm afraid to start a campaign like this where I'm giving a worse case scenario on all markets of 1:100 until later proven other wise. Do people really pay $5 a click on some products where they get only $80 a sale? Because that would mean they are at least making 7 sales per 100 clicks. Nobody would run a campaign like that other wise.

So whats more practical.... lowering your CPC which seems impossible as I can't get above QS of 8, or just pay the $5 and gamble that I would make 7 sales per 100 clicks?

Plus how accurate is Google Keyword Tool. I notice on my campaigns it saids max bid is below first page estimate but I'm still on the first page. Does this mean when Google says estimated CPC is $5, it is geared towards making people who don't know what they are doing to pay the STUPID TAX?

Is it just about testing and gambling $500 away to see if you make 7 sales? What other way can I see or research how well a product converts?

Do you guys focus more on lowering CPC, or raising conversions rates or both? What is easier in your opinion.

Thank You....

[dburk]

Hi sourcecode,

You are making a number of untested assumptions in your scenario. A more simple formula would be:

Profitable Ad = EPC > CPC

The main variable in EPC is your conversion rate, therefore conversion rate is one of the two primary variables in the above formula. The other primary variable is your Maximum Bid. There are other variables of course, but those involve changing the overall offer or ad variant.

So, once you determine your EPC for a given ad, you will know exactly what your maximum bid should be. If you cannot generate clicks at that bid, then then you can improve the conversion rate by optimizing the landing page.

In your scenario, you would need a 7% conversion rate to reach break-even. Your original formula assumes a 1% conversion rate: "never start a PPC campaign where your cost per 100 clicks exceeds you commission amount for one sale". That is common advice for affiliate marketers since that is a typical conversion rate for many affiliate offers. So, unless you have reason to believe that your offer will have a higher than typical conversion rate it would be wise to stick with that advice.

When it's your own offer, there are many more variables with which you can experiment, and much higher conversions rates may be achievable. When you create your own landing pages and you develop the knowledge and skills required for higher conversions you can often achieve higher conversions for affiliate offers.

Another thing to consider is that there may be many longtail versions of a root keyword that will have higher conversion rates, higher CTR and lower bids than the $5 one you are looking at.

[sourcecode]

hey dburk,

So if typical conversion is 1 sale per 100 clicks, why does Google show avg CPC of $5 for a product where you only get $80?

Are people paying $500 for hundred clicks and getting 7 sales out of it? Is 7 sales unrealistic and very seldom seen?

Is Google's estimate accurate, or representing dumb campaigns? lol..

[dburk]

Originally Posted by sourcecode

hey dburk,

So if typical conversion is 1 sale per 100 clicks, why does Google show avg CPC of $5 for a product where you only get $80?

Are people paying $500 for hundred clicks and getting 7 sales out of it? Is 7 sales unrealistic and very seldom seen?

Is Google's estimate accurate, or representing dumb campaigns? lol..

Hi sourcecode,

There are a number of possibilities:

1. You may be looking at a broad match keyword that is too ambiguous.
2. There may be other products that convert well and/or have much higher selling prices for this keyword.
3. Google's estimate will include failed bidding stategies that greatly exceed the top advertisers' actual bids.

So you should consider this a warning that unless you are using best practices, you may have difficulty using the keyword in question. A little bit of keyword research will reveal more specifics on the keyword in question.

[Kyle Tully]

You've also got to factor in backend sales.

Many people in competitive markets (ie those with high CPC's) are losing money on low-ticket front end sales to make money on high-ticket back end sales.

If you go in there as an affiliate with ONE front end product (that you only get a % of) and no backend products, you're going to get your ass handed to you.

[Robert_Rand]

There's no way you're gonna get a 14% conversion rate on an $80 product with cold traffic. Save your money

The answer to your question is that you don't need the most expensive keywords in any given market to make money.

In most markets there's plenty of keywords where you can make money on a front end affiliate sale with PPC. You simply have to figure out your numbers, bid accordingly and then optimize your campaign (add/delete keywords)

Try starting your bidding at around .50 on thousands of keywords for your market, then go from there.

[sourcecode]

thank you guys... that makes more sense to me now