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Paid Search for Beginners

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October 23,2015

By Brad Shorr, Straight North

 

Companies make a grievous error when they dabble in paid search by going through the motions of setting up a Google AdWords account, semi-randomly targeting a handful of keywords, and setting a budget of a few hundred dollars a month.

 

Going about pay-per-click (PPC) advertising in such a perfunctory manner is a waste of time, only giving companies the illusion of doing something constructive to generate sales leads.  To understand why this is the case read on: We’ll discuss the most important things paid search beginners need to understand:

 

Does PPC advertising make business sense for our company?

 

PPC Economics 101

The business case for PPC is different for every company, but here are key considerations to think through:
 

  1. First, consider the click-through rate (CTR)  — i.e., the percentage of people who click on the ad after seeing it. If your CTR is 2 percent — a reasonable target — it will take 50 ad displays to generate one clickthrough to your landing page.
  2. Next, consider the conversion rate — i.e., the number of people who place a phone call or submit an online form after clicking through to your landing page. If your conversion rate is 5 percent — again, a reasonable target — it will take 20 clickthroughs to generate one sales lead.

 

For the sake of discussion, let’s further suppose you target one keyword in this PPC campaign, with a bid price of $3. In this case, the 20 clickthroughs required to generate the single sales lead makes your cost per lead $3 x 20, or $60.

In addition, there would be a management cost component, either a fee paid to a PPC agency or whatever internal time is required to manage the campaign. If the fee is 20 percent — once again, a reasonable target — your total cost per lead (CPL) is $72.

These are the fundamental economics of PPC. The more competitive your industry, the more expensive the keywords are, and in all probability, the lower your CTR and conversion rates will be.

 

How Much Is a Sales Lead Worth?

Sticking with our example, is a sales lead worth $72? The answer obviously varies for every company, but all companies should consider the average lifetime value of a company into the equation. For instance, if the offer used in a PPC campaign generates an initial profit of $20, $72 seems like far too high a cost. However, if the initial sale leads to a customer relationship that on average generates profit of $1,000, $72 is a real bargain. Many companies that could cash in big with PPC dismiss it as an option because they are too focused on the conversion transaction.

 

Does One of These Lead Generation Scenarios Sound Like You?

Assuming the fundamental economics of PPC make sense, a 6-12 month trial campaign will provide enough data for most companies to determine whether it is a viable way to generate leads. A couple of additional business conditions to consider include:
 

  1. How much is lead generation costing your company now? Companies that rely on the sales force for lead generation tend to have a very high cost per lead, since sales talent is by nature expensive.
  2. Is your lead pipeline full? If your other sources of sales leads are relatively low, but are not filling the pipeline, PPC may be able to fill the gap.

 

Finally, keep in mind that a well-managed PPC campaign improves over time. Even if CTRs and conversions are high in the initial stages, improvements in keyword selection and other factors, driven by expert data analysis and testing, can produce massive improvements in lead generation results.
 

Looking to stay informed of other digital marketing best practices that can help to GROW your small business? Subscribe to our PR 101 eNewsletter today!
 


 

Author Bio:

Brad Shorr is the B2B Internet Marketing Director of Straight North, LLC, an Internet marketing firm headquartered near Chicago with clients throughout the U.S. Straight North’s services include PPC management, SEO and responsive web development. Connect with Straight North on Twitter and Facebook.

 

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