Just wondering what % to sales Ratio some sites are getting? Our sales to total Adwords cost runs between 3-4% (avg campaign cost $1000/month). I'm okay with this amt especially when comparing it to other advertising mediums but I would like to know what type results other businesses are getting.
I'm more interested in your Return on Advertising SPend (ROAS). For every dollar you spend in AdWords, how much do you sell.
Every $1 in PPC yields about $23 in sales. There is also a long term effect, you are getting repeat customers .... customers that book mark your site and you don't have to PPC for the sale.
What kind of reasoning is that? We aim to re-invest 10% of revenue back into advertising of which PPC is the majority.
That's an outstanding ROAS. As a marketer it makes me think you have a lot of room to be more aggressive with your bids and drive a lot more volume. My clients are ecstatic with any ROAS above $3. If I showed one of them $23, they would want to know why I was letting all that opportunity slip away.
It doesn't exactly work like that .... but that would be nice "Selling" $23K does not equate to "making" $23K. Consider that I'm a traditional retailer, with a physical product, so right off the top you've got cost of goods plus freight, which on our shoes is 48%. And other costs. "inventory carrying costs" with about $500K in retail $. (which only about 1/5 of this inventory was bought just for the web site .... in the beginning we just pulled from the stores). And more costs ... the internet business now requires the time of about 2 full time employees (they don't do internet all of the time but we've guaged it takes about 80 hours a week of work so you subtract out $3200 for that ($10/hr). But I will say that matter how you dice the numbers (ROI, ROAS, Adv to Sales Ratio), the pay per click ads are cost effective. Our realized profit margin is around 30% ....consider is is only about 17% on my retail stores. So on $23K, you'd see about $7K realized net profit. Now, for the overall business profit, you must also subtract your inventory carrying costs, which would roughly be 10% of inventory investment (with an amortized amt for the over the web business portion). And amortize some other expenses as well. You do end up with a paper profit on which you have to pay taxes .... a profit which somehow never makes it to my personal bank account .... it's used to buy something for the business. It is profitable, but no where near $23K a month! Absolute bottom line after tax would be somewhere around $2K. Which is actually pretty good. As for the high ROAS, my key word advertising is very targeted .... only toward a specific brand of shoes. My ROAS would be significantly lower if I was going after a broader based key word. I always target the key word ads towards a specific brand. A brand where I have a huge differential advantage in terms of styles & sizes. I would not be able to compete with sites like shoes.com if I went after the keyword "shoes". ISHOPHQ: I probably should be more aggressive ... at least increase my daily budget. Do you have a lot of retail stores for clients? I think there is a lot of possibilities for retail stores to develop niche markets over the internet. The problem is many of them (like me) don't know very much about the technical aspects. And hiring someone that really knows what they are doing is not easy .... many potential clients for someone like you don't know "what they don't know."
But then, of course, you have people like myself who are in the real estate business and where the figures are dramatically different from those engaged in e-commerce. For example, if I assume $7 spent each day but just one click results in a sale (even though it can take several weeks/months to turn into that!), you're looking at an average of at least $3000 net commission (i.e. after paying all the expenses that agents incur for a host of different things), so the R.O.I. is somewhat phenomenal. I certainly don't want to encourage my local colleagues to pick up on this idea (!), but I must admit that all my promotion money goes into AdWords nowadays. Indeed, I couldn't cope if I also advertised in the real estate mags and newspapers in my neck of the woods. Needless to say, there's a learning curve before the clicks occur and before they convert sufficiently well, but it's undeniably worth the effort. Duncan
So if I follow this correctly you are spending $1,000 in Adwords to make $2,000 in profit. Now is that profit before or after you subtract the cost of the adwords? But if we talk profit rather than sales then your adwords return isn't very good. You work your ass off and take all the risks and then give Google either half or one third of everything you make. That's a hell of a deal for Google don't you think?
Too Good of a Deal for Google but maybe still good for you since that is income you would have never seen.
The estimated profit if after subtracting the cost of the adwords ..... a rough estimate of the actual estimate of cash flow. I am coming from a retail perspective .... and I would be thrilled if I could see 10% of the amt of sales of my retail stores go into my "personal bank account." (I didn't want to leave the impression that we were "making" $23K a month on an Adword campaign). There are realized profits and there is the real contribution to cash flow. Last year, my accountant looked at our web costs to sales ratio and told me I should invest in expanding that segment of the business because of the profit ratio. There was a 13% differential advantage in profits for the e business segment & the stores ... I was just throwing out the absolute bottom line ... real money. If I compared the Adwords campaign to a new mall store, my leases will be based on a 12% sales cap (12% of the mall avg sales per sq ft), with a 6% overage at break point. So if you have an "average" store you're paying 12% rent. Talk about working .... if you sell 2X the mall average you're still paying 9% of your gross sales in rent. Maybe I think this is okay because I'm in retail and just have lower income standards? There are other benefits too ..... like Steamboat mentioned, this is sales we wouldn't have gotten. A really good question is one that IShop proposed: "do you know the value of a life time customer?" I can see why some companies are willing to invest more in pay per click. In addition of course to investing in SEO.