South West eCommerce

Advertising in the pay per click search engines? Not sure how much you should be bidding?

The amount you need to bid of course depends on the keywords you are advertising on, the competition, and what position you want to be in. But here’s a way of determining the maximum you should bid. It’s called your breakeven cost per click, and here’s how you work it out.

1. Determine how much a sale is worth to you. If you’ve got a fixed price this is easy (eg. $50 per sale), but if you’ve got different prices depending on what product or service is purchased, then you’ll need to come up with an average number. Basically you need to come up with a figure of how much a sale is worth to you, in dollars.
2. Next, go through your Pay Per Click reports, or your website statistics, and work out what your average conversion rate is. That is, the number of sales or leads per visitor (eg. 1 in 100). You need to convert this to a percentage (eg. 1%)
3. If you take payments online, then you can move to step 4. However, if a “conversion” on your website is simply a lead (ie. not an actual sale), then you also need to work out what percentage of your leads convert into sales. For example, out of 10 leads/enquiries you may normally convert 5 of them to sales (ie. 50%). You should then multiply this percentage by your enquiry rate worked out in step 2 above (eg. 50% multiplied by 1%), to work out your actual conversion rate (eg. 0.5%)
4. Now that you have your conversion rate, simply multiply it by your sale value (eg. 1% multiplied by $50) - this will give you the maximum amount you can pay per click (eg. $0.50) to break even. In this example, if you then spent 100 clicks at $0.50 each, you would spend $50 in clicks and make 1 sale (1% conversion rate), making $50.

Obviously you want to spend LESS than you breakeven cost per click, so that you make a profit, but that gives you an idea of the highest you should go.

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