Do you know the value of a conversion? It may seem like a basic question, but there are many factors to consider.
For example, ecommerce advertisers may determine the actual value of a conversion as the purchase price of an item. If a person buys a $100 widget from your site, then the value is $100. But in the real world we know there are other expenses incurred including overhead, shipping, etc.
If you are participating in online advertising, a way to calculate a value of a conversion is to look at Return on Ad Spend (ROAS). ROAS is simply dollars sold divided by dollars spent. It means how many dollars you are getting back for every dollar you spend. Going back to our widget example, if an advertiser spent $20 for advertising on that widget, the ROAS would be 5. 100/20 = 5. For every dollar you spend, you are getting $5.
Return on Investment (ROI) is another way to calculate a conversion’s value. The formula for ROI is (Revenue — Spend) divided by spend. This is a way to determine what percentage of spend you are getting back as profit. If you spent $20 on advertising a widget that sold for $100, to calculate ROI take ($100-$20)/20 * 100 = 400%. ROI should be as high above 100% as possible. Also, remember to take the lifetime value of a customer into account when examining the value of a conversion.
Regardless of how you measure your success, the important thing is that you are taking steps to track and improve results. Making sound decisions on what efforts are working and not working will surely help to boost your bottom line.
As we all know, the economy isn’t as strong as we would like. The challenges are stiff, but companies who take advantage of the flexibility of online adverting can still reap big rewards. Most people start their search for goods and services online, and companies advertising budgets are still rising in the main search engines. Google reported a 28% increase in online ad revenue in the third quarter, while Microsoft announced an increase of 15%, and Yahoo came in with a modest 1.2% boost.
Given these figures, its obvious advertisers recognize that search is a strong channel to attract and retain customers given a troubled economy. But spending money online is not enough. People are shopping more aggressively and will take the extra time to do their competitive analysis before they make a buying decision. Because of this customer behavior, it is very important to increase your conversion rates. More consumers shopping multiple offers can mean more traffic to your site, but also more clicks on your ads. If these clicks do not turn into conversions, then your return on ad spend (ROAS) is weakened.
Take advantage of the flexibility that online advertising allows and get creative with your message. It would be very expensive to create 5 different TV commercials or 5 separate radio spots to communicate your message to potential customers. However, the cost to accomplish this with a search marketing campaign is minimal compared to traditional marketing channels. You have the ability to change ad copy every day, or every hour. You have the flexibility to rotate different messages in your Pay-per-Click (PPC) campaigns to test which works best. You can get creative with special offers on Tuesdays and Thursdays, 15% off for example, then turn around and create a new offer on Sunday (free shipping on all orders over $50). Online ad spending is up but that doesn’t ensure customer acquisition or retention. You must convert that traffic for the campaign to be a success. Be flexible, get creative and increase the chances that your message is the one that convinces a searcher that they should buy from you!
With all the advanced internet marketing tactics out there; I thought it might be a good time to get back to the basics. Not everyone is as experienced as the next; and with all the different techniques and terms, it’s easy for a beginner to get confused. The purpose of this post is to help novice internet marketers and business owners get a grasp of some common terminologies being used within internet marketing.
SEO stands for Search Engine Optimization. Search engine optimization is the process of enhancing your website’s architecture to achieve higher organic rankings within the search engines. SEO is a continuous process that should be implemented on a daily basis. There are many tactics to search engine optimization; and the qualifications set by the engines are dynamic and ever changing.
SEM stands for Search Engine Marketing. Many people easily get confused between SEO and SEM. Search engine marketing refers to your paid efforts within the search engines. Aside from natural results, most search engines also have a space for paid search listings. These paid listings usually appear at the top and on the right hand side of the search results page. There are different formulas that the engines use to determine the rank of your paid listing. Some engines rank you solely based upon the price you are willing to pay per click; and some base the rankings upon a number of factors, including but not limited to, keyword bid, click through rate, ad copy, and relevant content on your website/landing page. Most engines operate their paid listings on a PPC basis. PPC stands for pay per click. This method allows the advertiser to only pay for actual clicks as opposed to other methods such as CPM; where the advertiser is paying for every 1,000 impressions. With PPC an ad may appear in the search results 10,000 times, but if the ad was only clicked on ten times, you are only paying for 10 clicks. This structure is very attractive to advertisers as they are solely paying to drive relevant traffic to their website that should result in an increase in conversion rates.
CPC stands for cost per click. This refers to the dollar amount you are willing to pay for a visitor to your website. Depending on your industry and competition; CPC’s can range from $0.01 to $10, $20 or even $50. Remember that when determining your ad’s placement, many search engines now take more factors into account than just your CPC.
ROAS stands for Return On Ad Spend. When it all boils down; ROAS may be the most important metric to study. A great advantage to SEO and SEM, as opposed to more traditional marketing methods, is that you are able to track your ROAS more closely. With all of the analytic programs out there, it is relatively easy to monitor your efforts and fine tune them as needed; ultimately increasing your ROAS.