If you have used AdWords you will probably have discovered that it can be a real money pit. A poorly optimized AdWords campaign will see your ad budget quickly diminish, often with very little to show for it. This is why so many small businesses declare that AdWords cannot work for them. The trick to getting a good return on investment (ROI) from this paid search platform is to monitor and optimize your campaigns. Here I will share my top tips on how to do this.
1. Conversion Goals
Your AdWords campaign should be designed to deliver conversions. This may seem obvious, but many people make the mistake of trying to get as many clicks to their site as possible, without considering whether a majority of visitors are actually wanting to buy.
The most important metric is your Cost per Conversion (CPC), also called Cost per Acquisition (CPA). This provides an average cost for each type of purchase, which you can then use to determine if the campaign is worthwhile. If you are running very tight margins, your campaign may be creating a lot of extra work without any extra profit.
For example, if you are selling a product for $100 with a profit of $25 per sale, you need to ensure that your cost per conversion, plus order processing, packaging and postage, is less than $25, otherwise there is no profit. While calculating cost per conversion is relatively easy when selling an item, it becomes more complicated when selling business services.
Business services rely on “lead generation”. Ad clicks are far less likely to result in a sale, so it becomes even more important to know how much money you are spending on advertising to generate new business.
One way to achieve this is to apply your AdWords Click ID to contact form enquiries. This allows you to track each customer journey, which will allow you to determine a cost per acquisition. If a business service generates $3000 revenue over six months, you may be able to afford to spend $500 on advertising to achieve this. As long as you are bringing in new business, and on average each customer works with you for six months, you will be generating $2500 revenue for every $500 spent. Depending on the business type, this may or may not represent a viable ad spend.
2. Set Maximum CPA And Target Ranges
Once you have determined how much money you can afford to spend on advertising to make a profit, you should set a maximum CPA. Monitor your account and make sure you do not exceed this.
As well as a max CPA, you should also set a target range. This sets a lower limit for ad spend per conversion. Setting a lower limit will allow your AdWords campaign to make more profit while still generating good leads. If you set it too low, however, you may find that the only leads generated are on search terms that do not convert.