Conversions have long been, and will continue to be, your scorecard for success as an advertiser on AdWords. The value you gain from a conversion can be measured in many ways: new customers, transactions, revenues and/or profit. Accumulating and measuring conversions isn’t the secret to growing your performance. Leveraging the conversion data, specifically optimizing your account based on the value of your conversions, is the key to long-term growth and success.
At the foundation of your optimization efforts is identifying the ultimate outcome (i.e., transactions, revenue, profit, etc.) you want out of your account, measuring the value of that outcome, and using the data to continually and consistently grow your performance. For instance, if you want to grow profit, measuring and using the number of new customers (CPA model) may drive you in the opposite direction of more profit.
Over the next few posts I will examine the most common goals for online advertisers and discuss pros and cons for each of them. There is an optimal model for most companies, but my experience is that over 90% of all the online advertisers we talk with want one thing (revenue and profit) but they do not use a scorecard and/or optimization model centered on that outcome.
Knowing what a conversion is worth before you buy the click is foundational to successful advertising execution. This series will define the worth of various conversions and how to execute to maximize that worth. These are samples of conversions:
Completed shopping cart (transaction)
Fill out and submit web form (lead)
View of key page (i.e. online demo)
Download document (i.e. white paper)
Phone call (Call Extension)
Any other action on your site that can be measured
This is easy enough and straight forward for savvy online marketers. If this was all there is to it, we could just put a $ figure to each of these actions based on the value they add to our business and be done with it. For example, every sale on my website is worth $25 to my company because the average sale is $100 and we have on average 25% margins on what we sell. Now assume you have a 3% conversion rate on your site and you can spend $0.75 per click for a given keyword.
In reality this is far more complex. If you have 10,000 products, each with different prices and margins. Now, your average checkout has 2.7 products in the cart. Is each sale worth the same? What about adjusting for mobile clicks, how about return visitors? Is an exact match worth more than a broad match visitor? Herein lies maybe the biggest waste of all online marketing budgets, and more importantly, the biggest opportunity for the progressive advertiser to outcompete everyone else in their industry.
In my 15 years in eCommerce, with the last 5 in the paid search (PPC), I have seen the full spectrum of models to grow sales and drive profits. As I write this in November 2014 on the eve of the holiday season kicking into gear, most companies are using the same measurement of success today as they did 10 years ago. Additional complexity has been added, such as analyzing attribution relationships. But if the added complexity does not have a relationship to the ultimate outcome (profit), then it’s simply added complexity without benefit and cannot be leveraged for growth. Back then very limited data was available compared to being able to track almost anything today: the number of conversions they can generate at a set cost per conversion (CPA) is the measurement of success and means of executing their AdWords programs.
When everyone does this it creates an incredible inefficiency when competing for the most profitable clicks you can buy from Google. What if there was a much better way? What if you knew exactly what the next click from Google would give you in return (revenue and profit)? Would that change how you run your AdWords program?