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Adwords CPC Rates

by CreativeWest
6 replies
  • PPC/SEM
    • |
210 monthly searches on a specialist keyword, $3 per click for first page, average is 2.5% conversion from clickthrough means $120 cost per acquisition. Are we missing something or are the bid rates just delusional these days.
#adwords #cpc #rates
  • Profile picture of the author dburk
    Hi CreativeWest,

    Not every advertisers pays the same CPC for the same ad position. AdWords, like many ad platforms, uses a bid modifier known as Quality Score. So, even though you might expect to pay $3 per click, another advertiser might need pay only a fraction of that price because they have excellent QS. Likewise, another advertiser might have a website that converts the same traffic at a rate substantially higher than 2.5%.

    Furthermore, $120 might not be too high of a price. Many advertisers have learned how to correctly calculate average lifetime customer value and found that a $120 is reasonable for an average lifetime value of say $700.
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    * Get Results - Outsource Your PPC Management |
    *     Don Burk Advertising & Marketing - www.donburk.com

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  • Profile picture of the author CreativeWest
    In this particular instance they don't and they aren't which would be the case with any relatively new advertiser. With an average 8% of revenue for marketing of which CPC is 16% of that (1.28% of revenue) means each customer needs to generate $9,375 of revenue to breakeven on the ads. If you add the average customer lifetime value of 6 that means the customer needs to order $1,562 per time to breakeven. The other way to look at it as Amazon average order value is $127, it means you are giving the customer their first order for free at your cost and at 30% gross profit margin you need a minimum of 4 sales to breakeven, you are loss leading the customer.

    Amazon in 2012 spent $108m on Adwords with $61b revenue or 0.18% of revenue, 1/7th that of the average retailer which means Amazon is buying the same click for 43c. So the only way it works is to heavily dilute the costs via unpaid traffic or “AdWords is still doable and reasonably profitable for local businesses or those that have narrow niches and high barriers to entry”.
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    • Profile picture of the author dburk
      Hi CreativeWest,

      It isn't all that clear what you are asserting.

      It sounds a little like you are asserting that Amazon's revenue for that one year came all from marketing done during that same year, if that is what you are asserting then I would ask you to rethink what is going on there. The 61 billion in revenue came from more than 10 years of cumulative marketing and customer acquisition, it didn't happen as the result of a single year of marketing.

      I don't know what the average lifetime value of an Amazon customer is, but for me personally I can attest that it is well over the $20,000.00 mark and still counting.

      The thing about CPC prices is that they are controlled by advertisers, it is auction based and only goes as high as advertisers are willing to pay, and no more. Not everyone has the same quality score, and therefore not the same CPC, neither do they have the same profit margins, nor the same customer retention rate, nor the same AOV, nor the same conversions rate. I think it safe to assume that Amazon's metrics are far above average in all those areas, yet plenty of small advertisers are successfully competing against Amazon.

      If $120 CPA is too high for your product then lower it. That is within your power to do.

      If $3 clicks are too expensive for your niche then lower the CPC, that is within your power simply by improving your Quality Score.

      If 2.5% conversions are too low for your niche then raise it, that is within your power to do through superior marketing. The volumes of books written on the topic of marketing could fill a rather large library.

      It seems you've reached that point that every marketer finds himself in from time to time. Marketing is competitive, it is in essence, financial warfare, Marketers are getting more sophisticated every year. You must up your standards or get left behind.
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      * Get Results - Outsource Your PPC Management |
      *       Don Burk Advertising & Marketing - www.donburk.com

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  • Profile picture of the author CreativeWest
    Except it doesn't answer the question plus you have zero information to make such an ignorant and uneducated last statement, anyone else?
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  • Profile picture of the author homebizoutlook
    I've been having success with Bing PPC - much cheaper than Google.
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