Google Problem Part 2 – The Analysis
Posted by: Socrates Socratous on: Mar 12th, 2007(For part 1 of this post, go here)
Wow!
What a diverse response…Â
Indeed Ad #1 has a higher ROI (return on Investment).
That is true since I pay $6.84 to make $27
which is less than what I pay for ad 2 to make the
same money.
The real question here not which AD yieds the most
ROI, but which AD is going to bring more PROFIT for
the LIFE of the campaign.
Lets take a deeper look.
When it comes to PPC advertising, we usually look
into 2 important conversion rates.
a) the CTR (conversion rate of impressions to clicks)
b) the Conversion Rate of a click to action (sale, lead, etc)
However, most people take the “conversion rate to action”
thinking that the higher it is, the more money they make.
For example-
you may hear, “I get a 5% conversion rate”, I am so proud 🙂
But then, how much of that same traffic can you get,
and how fast. If I can supply you with 100 of the same
quality people every day, you will consistently make 5%
but you will only make 5 sales a day. no more.
If I can supply you with 300 less targeted people every day,
and you only convert at 3%, you can make 9 sales a day.
Even if you paid more for #2, it may make you more money.
You just have to look at the numbers.
Back to our PPC example.
usually to get better targetted people, you will have to
prequalify them with your ad copy which usually leads to
less CTR.
CTR can control how fast you are getting people to your site.
An ad with 2% CTR compared with an ad that has 1% CTR gets 2 times
the traffic for the same time, or in other words for the
same number of impressions.
That is why you have to take both conversions into
consideration when you are estimating your profit.
In other words, you want the conversion rate of IMPRESSIONS
into ACTIONS and to try and better that number.
The following formula will tell you the Conversion Rate
of Impressions NOT clicks.
Conversion Rate * CTR / 100
so if you have 2% CTR and a 2% conv rate,
the above formula will give:
2 * 2 /100 = 0.04%
So to see how much profit you make per impression
you do this:
0.04% * (Sale price – Cost Per Conversion)
This will generally give a very small number and you may
have trouble doing it with your calculator, so if you
multiply it by 1000 you will get the profit per 1000 impressions
which will be easier to work with.
Now that we know the theory, lets get back to our problem
to see which ad is better in terms of profits.
Ad A:
Conversion Rate = 0.8%
CTR= 1.59%
0.8 * 1.59 / 100 = 0.01272%
Profit per 1000 Impressions:
0.0001272 * ($27 – $6.84) * 1000 = $2.5643
Ad B:
Conversion Rate = 0.6%
CTR = 2.34%
0.6 * 2.34 / 100=Â 0.01404%
Profit per 1000 Impressions:
0.0001404 * ($27- $8.58) * 1000= $2.5861
Now this shows that AD #2 is slightly better than #1.
There is also another issue with google. When dealing
with conversion rates, google rounds the numbers so
sometimes they are not as accurate.
Here is a more accurate formula:
(Sale price – Cost Per Conversion)*(Sales/Impressions)*1000
will tell you the profit per 1000 impressions
and to get the number of sales do this (if cost per conversion is >0):
COST/(cost per Conversion)
With this formula you will get:
Ad A:
$2.4659 profit per 1000 impressions
Ad B:
$2.6332 profit per 1000 impressions
Ad 2 will profit 17.73 cents more than Ad 1 every 1000 impressions
In our example the difference is not much. But keeping in mind
this, can show you hidden money in your ventures.
Also, Ad 2 will get you more customers than ad 1. More customers
means more future profits etc.
Considering this, Ad 2 is a winner to me.
I have a reason I let both ads running. I also have a 3rd ad
running alongside these ads. (that is why %served doesnt add up to
100)
I will get into that at a later post.
I know the numbers can be taunting to some, so if you have
any questions please post a comment, and I will be happy to
assist you.
Till next time,
Partner to Your Success,
-Socrates Socratous
Related Posts
- Targeted web Traffic that converts like CRAZY (Major Profits)…
- New Photos & Webinar Replay
- List Control Bonus Offer worth $18,234+ is now LIVE
- List Control Bonus worth $18,234
- List Control Bonus – New video from Frank Kern
Socrates:
Interesting you would mention tennis. It is historically my favorite sport. My
grandfather, Richard (Dick) Skeen was U.S. Champion in 1941 (before the open era
of tennis began); was ranked #2 in the world in 1939 (behind Don Budge) and
played with and beat the top players of that era (Budge, Vines, Tilden, Riggs,
Richards and the best of the German players who were very good). He played
Davis Cup, Wimbleton and the low paying circuit that it was in those years
(mostly smaller tournaments pitting the top players week in and week out). My
grandfather beat Bobby Riggs in Bobby’s first “professional” tournament in San
Fransisco (semi-finals-6-0 & 6-0), in 1939. He played doubles with Vince
Richards (another US champ) and often played doubles with Vines and others in
tournaments throughout Europe, prior to the war years. Once World War II began
all the best in the world played a repeateing loop circuit in the U.S., Mexico,
Canada and South America. In 1933 my grandfather (my fami
ly lived in Hollywood, CA, my birthplace too) started a tennis academy for young prodigies.
My grandfather developed Jack Kramer from ages 12-15 (Kramer won the US 18’s at
age 15), and of the first 13 kids in his first academy 12 went on to become
National champions and three became world champions (including Louise Brough).
Oh, the 13th kid and only non-champion, oh he became a professor at the Stanford
University Law School (as my grandfather once said to me, “my only
dissappointment was that kid who became a law professor”). In his later years he
played the seniors circuit winning over 50 titles. I have his original Davis
Cup racket and his US open rackets. Life magazine did a special feature on my
grandfather in the February 1964 edition. Before any of his green kids touched
a tennis racket they learned chess (for three months, four days per week, three
hours per day). Why? To learn strategy; always thinking four shots ahead so
they would be in the right position to str
ike. He wrote a book in 1972 entitled, “tennis champions are made, not born.” His teaching accomplishments bore the
truth. Though impressed with Bjorn Borg and Jimmy Conners he felt players like
Pancho Segura and Poncho Gonzales, Bill Trabert, Kramer and others would have
held there own against today’s best, not from power, but from pin-point shots
and net play. So, yeah, tennis is my game (I was actually an All-American in
track, not tennis, in college).
Strategy in growing an on-line business is the same. Study one’s opponent (or
in this case on-line retailing and see what works best); keep one’s nose to the
grindstone, practice, practice, practice, experiment and if that fails, try some
other stroke, Ad, formula, whatever, and mostly do it from the heart and have
fun. Having fun is the key ingredient to success.
Blessings to you and enjoy your tennis,
Steve Galbraith (my mothers’ maiden name was Skeen)
WoW!
I wonder if everyone can get their head around this explanation.
I had no idea marketing was going to require “rocket science”
This is definately for the “hard core” types
Personally, I’ll just keep it simple and maybe buy a service that calculates these things for me if I really think I need it.
Dan
Hi Socrates,
Thank you very much for the great question and answer to the question. You explained everything very well.
I prefer to eliminate the people that are just looking if at all possible without having them click on my ad for nothing.
James
: )This is just an equation, an ability to meet the challenge of filling any space required in explaining small and great detail to those : )
that have at this time, become very confused and
lost in the complex detail about the simple marketing tools, calculations, excitement and ease of gaining sales in any market. phewww!
I think I’ll be a chef! : )
Now my question to your answer is this. If you drop the other ad will your sales increase to equal or exceed the total sales you have between the two? Without seeing the ads it maybe that the two different ads may be causeing different responses it two different groups. For example those clicking on ad 1 may not click on ad #2 and vise versa. It will be interesting to see what happends to sales after dropping one of the ads. It would also be interested to know what the response was to any optin list endeavors taken and the sales accomplished from those lists after repeated exposure to the products/services.
Socrates…
You’re a blessing.
By-the-by… how goes
the new version of MyDD?
TK
Complicated answer. I had to read it a couple of times to understand it. I do have one question.
Do you know which keywords converted to sales?
Conray