If you are running a business, I am willing to bet that you are regularly getting contacted (maybe even to the point of it being annoying) about doing some advertising to bring in more leads, also known as pay-per-click (PPC).
Everyone wants more leads, right?
Depending on the quality of the salesperson you talk to, you might leave the conversation feeling like something doesn’t add up, not uncommon.
In less than a thousand words my goal is to give you enough knowledge about pay-per-click advertising to have a decent conversation the next time someone tries to sell you digital advertising.
I am going to keep this as easy to understand as possible, let’s see how I do.
First, some background:
When I first came into the website development/ digital marketing world, I didn’t know anything at all. We decided that it wasn’t super important; I was just supposed to go out and have sales conversations. This decision was made partially because it is a vast world and also because I am known for diving deep into new ideas and will get lost trying to attain mastery.
With my very limited understanding of digital marketing (and business in general) I took the stance that PPC (Pay-Per-Click advertising) was terrible and SEO (search engine optimization) was vastly superior.
I was wrong; I didn’t understand then how transparent PPC is and how subjective SEO can be.
After doing a lot more reading and having conversations with people significantly smarter than I am, I have changed my ways. I am going to talk a little bit about some items that are important to think about in this area.
First, we need to define some metrics (jargon) that are important in this discussion. Some of the terms are applicable only to digital marketing, and some are standard profit and loss items.
Life Time Customer Value – This is the average of what all of your clients spend on your services and products. For the sake of this example, let’s assume our clients spend $2500 on multiple products and services that we offer, (we are also not going to go down the path of cost of goods sold for this example)>
CAC – Customer Acquisition Cost – This is the cost that you pay to acquire a new customer, the sum of all your marketing costs subtracted from the number of new clients. For this example lets assume they spent $20,000 in all marketing costs and got 20 new clients, their CAC cost would be $1,000.
PPC – Pay Per Click – means an arrangement where you pay for each advertising click. Google AdWords falls under this category, as does Facebook advertising.
CPC – Is how much you pay for each click in a PPC campaign. Costs of ads on Facebook and with Google are dynamic environments based on auctions.
I had been drinking the SEO Kool-aide, I loved the idea of long-term results vs. the ever-changing environment of PPC advertising. I had been hearing horror stories about SEO companies ripping off clients, but I was also hearing the stories of PPC people not getting results.
The beauty of PPC is in the transparency it provides and the immediacy with which you can begin to see results.
Here is some light math, I think this is important to consider but feel free to skip this if it isn’t your wheelhouse.
In the example above, a client spends $2500 on average with our company. If we are pretending that it is all profit (we are) then realistically you can pay $2500 trying to get that client to buy your product and break even.
No one runs a business just to break even, so the name of the game is to increase the gap between your lifetime value and your customer acquisition cost the more profit you make.
In our example let’s pretend that we want to profit an average of $2000 off of our clients. We now know that we can spend up to $500 to acquire them.
We make an ad and launch it, and we say that we are willing to pay up to $2 per click. Based on the options we pick, we might start getting clicks on our ad that same day, which leads to traffic on our site. This is way faster than any SEO campaign can produce results.
At the end of the month, we can look back and see how much we spent and work some math.
Our ad got 2000 clicks at the full cost of $2 each, so we spent $4,000 total for the month.
We got 14 phone calls and 1 new contact form completed, so we got a total of 15 new leads.
Pretend that we closed 8 of the 15 leads that would give us a close ratio of over 50% (we are damn good on the phone, or our PPC guy is really good at getting us targeted leads) and a CAC of $500 ($4,000 ad spend /8 closed deals) for this campaign.
Mission accomplished! We hit our goal (and the math accidentally worked out to be exactly right the first time)!
The real world is not quite as cut and dry since there are other important metrics to consider. However, it is still very measurable, way more so than traditional advertising was when I was a kid.
To have a good conversation, you need to know how much you are willing to spend to pick up a new client (notice I didn’t say afford, some people want more margin than others) and what the average client spends with you.
Side note: Average deal size is an accepted metric if people only buy ONE thing from you over the course of your relationship with them, most companies offer multiple products or have repeat clients so knowing your lifetime value is important. If you don’t sell multiple products, you should look at adding some because increasing your LCV is a huge lever for profitability.
Less than 1k words, how did I do? Comment below.