A lot of folks who start an online business make the mistake of assuming they will be able to generate plenty of qualified traffic using Pay Per Click advertising. Somehow, many are under the impression that PPC campaigns will work wonders for them, regardless of the business they are in.
While PPC campaigns can indeed be very successful, it’s critical that you study certain numbers pertaining to how your online business runs. Before getting started with PPC, you’ll have to know three key pieces of information.
1. Average Profit Margin Per Sale
This is calculated by subtracting the price your customer paid for an item from he price you paid to get the product.
2. Your Site’s Conversion Ratio
This is the percentage of visitors who purchase something from you, based on the number of visitors to your site.
3. Your Site’s Click Through Ratio
This is the percentage of people who clicked on a link in an ad you ran compared to the total number of people who actually viewed the link.
Let’s go through an example.
Let’s say your average sale is $20, your site’s conversion rate is 5%, and your click through ratio is 4%. Let’s say that 20 people click through on an ad your run. Assuming these figures, one person should place an order and generate you $20 in profit. In this example, each click through visitor is worth $1 to you. Therefore, if your click cost is under $1, you’ll have a profitable campaign.
