AdWords: Click Through vs. Conversion Rates
A common misconception for AdWords newbie’s is that a high Click Through Rate (or percentage) is a positive result. One has the sense that people are legitimately interested in your products and yes, business is going to boom soon.
That might indeed be the case in certain instances, but in most cases there are a few important calculation that when applied usually put matters into context. The litmus test is always the conversion rate; put simply, the number of people who actually end up buying your product. Since AdWords is really just a modern direct marketing (DM) tool, I find it worth while to apply the old school DM calculations.
First up, Cost per Enquiry: Your Advertising Spend divided by the number of Enquiries over a period of time. To over simplify; if you spent R1000 on Google AdWords and received 20 enquiries, your cost per enquiry is R50. This is an interesting calculation when comparing various media formats, but for me it is not really that revealing.
The real value lies in Cost per Conversion: Advertising spend divided by the number of sales concluded over a period of time. Using the same R1000 advertising spend, if only 4 of the 20 enquiries where converted to sales, the cost per sale would be R250 (R1000 divided by 4).
I mention these simple calculations to illustrates the importance of Relevance when selecting keywords. The higher the conversion rate, the more successful a business will be. Being specific when selecting keywords is a effect way of obtaining high quality enquiries and therefore achieving a higher conversion rate. A practical keyword example of this is “Accommodation in Cape Town” a string of keywords which covers many types of accommodation over a vast geographical area. It also happens to be a very competitive category with every new guesthouse thinking that paying for that number one ranking is going to launch them into the big time. With a campaign targeting the AdWords top spot for this search string, it will be very easy to achieve high click through rates, while running up a huge AdWords bill. Apply the Cost per Conversion formula and it will soon reveal that this strategy is not sustainable over the long term.
There are many factors that should be considered when determining the correct AdWords strategy to adopt. Staying with “Accommodation in Cape Town”, experience has shown me that it is much more effective to sponsor a particular type of accommodation in a certain suburb, and perhaps to even mentioning a price in the content to further assist in filtering results – if you see it as a big deciding factor. For example sponsoring “Self Catering Accommodation Camps Bay” would achieve much lower Cost per Conversion as it will attract highly relevant shoppers. While you might achieve far less clicks on your advertisement, they will be of a very high quality. This might be one successful permutation of a number of possible keyword options. Others could include "Rent Flat Camps Bay" or " Clifton Self Catering" as Clifton it is a relatively close suburb to the target suburb. This is how keywords with strong relevance are tested and over time their effectiveness will be revealed.
As new keywords are identified as being effective, it is important to continue trying new keywords and adverts in the ongoing hunt for the lowest Cost per Conversion.
That might indeed be the case in certain instances, but in most cases there are a few important calculation that when applied usually put matters into context. The litmus test is always the conversion rate; put simply, the number of people who actually end up buying your product. Since AdWords is really just a modern direct marketing (DM) tool, I find it worth while to apply the old school DM calculations.
First up, Cost per Enquiry: Your Advertising Spend divided by the number of Enquiries over a period of time. To over simplify; if you spent R1000 on Google AdWords and received 20 enquiries, your cost per enquiry is R50. This is an interesting calculation when comparing various media formats, but for me it is not really that revealing.
The real value lies in Cost per Conversion: Advertising spend divided by the number of sales concluded over a period of time. Using the same R1000 advertising spend, if only 4 of the 20 enquiries where converted to sales, the cost per sale would be R250 (R1000 divided by 4).
I mention these simple calculations to illustrates the importance of Relevance when selecting keywords. The higher the conversion rate, the more successful a business will be. Being specific when selecting keywords is a effect way of obtaining high quality enquiries and therefore achieving a higher conversion rate. A practical keyword example of this is “Accommodation in Cape Town” a string of keywords which covers many types of accommodation over a vast geographical area. It also happens to be a very competitive category with every new guesthouse thinking that paying for that number one ranking is going to launch them into the big time. With a campaign targeting the AdWords top spot for this search string, it will be very easy to achieve high click through rates, while running up a huge AdWords bill. Apply the Cost per Conversion formula and it will soon reveal that this strategy is not sustainable over the long term.
There are many factors that should be considered when determining the correct AdWords strategy to adopt. Staying with “Accommodation in Cape Town”, experience has shown me that it is much more effective to sponsor a particular type of accommodation in a certain suburb, and perhaps to even mentioning a price in the content to further assist in filtering results – if you see it as a big deciding factor. For example sponsoring “Self Catering Accommodation Camps Bay” would achieve much lower Cost per Conversion as it will attract highly relevant shoppers. While you might achieve far less clicks on your advertisement, they will be of a very high quality. This might be one successful permutation of a number of possible keyword options. Others could include "Rent Flat Camps Bay" or " Clifton Self Catering" as Clifton it is a relatively close suburb to the target suburb. This is how keywords with strong relevance are tested and over time their effectiveness will be revealed.
As new keywords are identified as being effective, it is important to continue trying new keywords and adverts in the ongoing hunt for the lowest Cost per Conversion.
posted by Tanya at
1:20 AM
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