Analyzing PPC Keywords Profitability
You are probably wondering if Pay Per Click advertising is a good way to promote your online business and increase your sales. To determine whether or not you can benefit from pay per click advertising, you need to examine the profitability of keywords, namely the keywords that you would choose to be associated with your ads. However, like all other internet marketing tactics, pay per click advertising isn’t for everyone. It depends on a few essential factors like the size of your target market and competition in the marketplace.
If this is your first time participating in a pay per click program, you may be wondering about keywords, namely what they are and what they are used for. When further examining pay per click advertising, you will see that all advertisements are associated with keywords. Those keywords are matched up with keywords from various different online websites; the websites that choose to participate in a pay per click program. These
keywords will also determine the amount of money that you will have to pay for advertising.
When it comes to choosing your keywords, there are a number of important factors that should be taken into consideration. Those factors include relation and popularity. You will want to choose keywords that are related to your online business or the products that you are looking to sell. For popularity, you want to choose keywords that are popular or ones that are actively being used in search engines. These two factors will help to
ensure that your ads will not only be seen, but that they will be seen by the right people, your targeted market.
Once you have determined what keywords you would like to use, you need to determine the cost of each of your keywords and/or keyword phrases . Yahoo used to have a free tool that gives you the cost of bidding on any of your chosen keywords. By entering in the keywords or the keyword phrases of your choice, you will be shown sample advertisements and how much they cost. Now you must have an account with Yahoo Search Marketing or Google Adwords in order to use their keyword analysis tools.
So assuming you have an account with Yahoo or Google, go to your account area and find the tool that gives you the cost of bidding. Now, assume a 1% conversion rate to start with, just more on the conservative side to see how things go. So, out of 100 clicks you should make one sale. Here’s a starter formula for calculating profitability:
At 1% conversion rate: profit per sale = price of product - (100 x cost per click)
If your product is $25, you break-even at 0.25 cents
or in other words, your maximum bid has to be less then 0.25 cents to start realizing any profits.
When using the above mentioned formula to calculate the profitability of a keyword advertisement, there are some additional factors that should be taken into consideration. For instance, the price of a keyword advertisement can change at any given time. This means that the price you have to pay may increase or decrease. It is also important to remember that not all of your advertisement clicks result in a sale, but you will
still be charged for each click. So , to maximize your Return on Investment (ROI), you need to use your best targeted keywords that would give you a better conversion rate. Identifying such keywords depends on your knowledge of your market and on testing and assessing the results .
The most useful measure of profitability is the Return on Investment or ROI. ROI is simply the ratio of your profit to your cost. So, let’s say you received 200 clicks from your campaign and the average cost per click is 0.15 cents, you converted at 1%, meaning you made 2 sales for a total revenue of $50. The cost for your clicks is (200 x 0.15 = $30). Your net profit is $20 from those two sales and your Return on Investment is (20/30) or 66.7%. Or in other words, on average, for every $30 you spend on advertising you make $20.
Now you can narrow your list of profitable keywords to only good performing keywords . Also, you should expand your profit list by introducing some more keywords and let them through your testing system that is build upon your target maximum cost per click and your desired ROI. Repeating this process will allow you to build a list of winners and continue to grow it.
Although it is best if you can profit from pay per click advertising, you may still want to give it a try, even if you feel that you cannot. With pay per click advertising, you are
able to limit the amount of money that you spend each day. Being able to control the amount of money that you may lose is just one of the many reasons why you should give pay per click advertising a trial run.
In conclusion, analyzing the potential profitability of your keywords is a fundamental first step before committing any money into a PPC campaign. The price of your product, competition, and your conversion rates will determine the viability of your advertising campaigns. Always know your max bid limit and your optimal bid amount, and work with those to select keywords and manage your budget.
Until next post, good luck with advertising your business online
Written by Meedo on April 7th, 2007 with
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