Find out if Pay Per Click is Worthwhile for Your Business

Unlike many people, I always liked mathematics at school. I still do and I use them as often as possible in my business. Of course, you will understand that you need to count your profit and your expenses. But that is not what I'm talking about here. I am talking about a simple way to calculate if using PPC (pay per click) is worthwhile or not. If you are the kind of person allergic to math, then this is not for you. But if you want to take the time, this method could be very useful to you.

Pay per click is still one of the best ways to bring targeted traffic to your website. But as you know, it's not cheap. Despite that fact, it could still be advantageous for you to use it. There are ways to minimize expenses but I will not cover them here; that would make this article too long. But I will show you a simple formula that you can use to validate expenses in a PPC campaign.

You will need to know your conversion rate first. For those who do not know what is a conversion rate, it is the number of sales you are making versus the number of visitors that come to your site. But, be careful here, you need your pay per click conversion rate. Since all traffic tools are not created equal, the conversion rate changes from one tool to the other. For example, if you are using traffic exchanges, your conversion rate can be very low. Why? Because people who visit your site using this particular tool are not interested to see your product. All they want is to get more credits so they can advertise their own product. As you can see, I'm not a big fan of traffic exchanges.

So, as I was saying, you need to know your conversion rate. For that, unfortunately you will need to do some tests. Spend a little money on PPC and see how much it converts. You can easily see how many people visit your site per day in your campaign statistics (the number of clicks). You also know how much you spend per click. And hopefully, you will know how many sales you made from that campaign per day.

Now, that is where it becomes exciting. Let's see the variables:

Conversion rate: CV
Clicks per day: CD
Average Cost per click: ACPC
Price of you product: PP

Here is the formula: CD x CV x PP - CD x ACPC = A number that hopefully is higher than zero.

Now what is that formula means? Bear with me here, I will explain every detail. There is nothing better than an example. So let's suppose we have a campaign that converts 1% (0.01), it cost an average of 0.15 dollars per click and we get 200 clicks per day (you can set the maximum you want to spend per day) and we have a product that cost 97$.

We will get this for CD x ACPC = 200 x 0.15$ = 30$
We will get this for CD x CV x PP = 200 x 0.01 x 97$ = 194$

Now if we subtract 194$ by 30$ we get 164$ that is your profit. It is a potential profit. Some days it can be less and others, it can be more. But on average that is what you should get per day. In this particular case, it could be advantageous to use pay per click. That is up to you to take the risk.

I myself consider that I should be making 5 times the money I spend on PPC to make it worthwhile and less risky. So in this example a profit of 150$ would be my margin of error. Less than that is too risky for my taste. But you are free of course to experiment with those numbers.

With that in mind, I get this from my previous equation (I will spare you the algebra):

CV x PP > 6 x ACPC (yes it's really 6, not a typo)

As you can see, the clicks per day have disappeared from our equation. That means that they are not an important factor. In fact if your numbers are right, you could run a 50 clicks per day campaign and still be in profit. Now isn't that interesting? You could spend only 7.50$ per day and make a substantial profit.

The more precisely you will know your conversion rate, the more precise this formula will be. Let's suppose again that we have a 0.5% (0.005) conversion rate instead. You would still get 97$ of sales per day for a profit of 67$ per day. But with these numbers, it would be risky to use pay per click. Just place the numbers in our new formula and see what you get. CV x PP = 0.48 and 6 x ACPC = 0.90 that means that the right side of the equation is higher than the left side and we want the other way around. I wouldn't recommend PPC in this case even if there is a potential profit of 67$. Your option would be to try and raise your conversion rate. A normal conversion rate is 1%. If you have 2 or 3% it is considered very good.

You could also work on another factor, which is the ACPC (average cost per click). Optimizing your keywords and keyword phrases will do that. Choose keywords that are less expensive and with less competition. Drop the most expensive ones. There are other techniques but as I said it would make this article too long and I do not want to bore you with too much details.

When it comes to pay per click, one has to test and fine tune. But in my opinion, it is still one of the best ways to get targeted traffic and very quickly. It's always an option to consider in your traffic efforts. I hope this will help you and feel free to comment on this article or ask questions. I will answer to the best of my ability.