In today's AuctionBytes "Vendor Monday" column, adMarketplace President and COO Adam Epstein talks about Pay Per Click advertising for online sellers. Each week, AuctionBytes.com runs an article submitted by a vendor or marketplace in the online-auction industry about a topic helpful to online sellers. Story submissions are welcome by emailing the editor.
Pay Per Click (PPC) advertising is a large, growing, and increasing complicated business. Last year, advertisers spent $15 billion on PPC worldwide, and that amount is expected to triple over the next five years as more online marketers discover that PPC advertising is an excellent way to gain new customers.
But with growth comes complexity and competition. And more often, this competition is leaving smaller advertisers at a distinct disadvantage in the PPC game.
The Rise of PPC Syndication Networks
In the early days (three years ago), PPC was called Search Engine advertising, because ads appeared as sponsored links only on Search Engine results pages. But as the demand for clicks exceeded the number of searches, the search engines found new places to display text ads.
Enter the Pay Per Click syndication network.
Through programs like Google's AdSense and Yahoo's Publisher Network, Pay Per Click ads began appearing on web properties across the Internet.
PPC Syndication is good because it means more reach - sometimes with high conversion rates at low CPCs. But syndication network campaigns need be monitored carefully because with this opportunity comes several pitfalls: namely click fraud and overinflated CPCs.
The Role of PPC Management
Large online marketers hire either in-house teams or outsourced companies to tackle the complexity of PPC advertising through analytics.
Here's how good PPC Management works:
- Gather Lots of Data. Run ad campaigns on all of the PPC Networks across the Internet.
- Analyze That Data. Evaluate the average cost per click and how many clicks turn into sales for each PPC Network partner.
- Plan Accordingly. Direct dollars towards the PPC Networks with the highest Return on Investment (ROI).
This is called conversion-based optimization - and to make it work across PPC Networks, you need a lot of data.
The Importance of Lots of Data
The secret of analytics does not lie in some fancy algorithm. In fact, the math for ROI (see below) is pretty straight forward - and smart marketers of all sizes have probably done a version of PPC Management on their own using a spreadsheet.
But what the big guys can do that most marketers (no matter how smart) cannot is to spend a lot of money on advertising to get a large enough sample size across several PPC Networks.
The unfair advantage that the big guys have is that they have more data than small advertisers.
Most online marketers do not have the resources to generate, let alone analyze, the amount of data needed to effectively evaluate PPC Networks - in fact, even setting up accounts with multiple PPC providers can be a major hassle.
Unfortunately, simply "sticking with Google" has its problems as well. Because so many inexperienced marketers use Google and are unaware of its syndication network, they bid the same amount for ads on search result pages as they do for ads that appear on the syndication network.
The result is that keywords prices rise and the ROI suffers. This is why large marketers need to constantly evaluate other PPC networks in the first place.
Analyzing the Numbers: Calculating ROI
Once you have the data, an easy formula to calculate Return on Investment is: Conversion Rate divided by Average Cost Per Click. Conversion rate equals total conversions (sales) divided by total clicks.
Experienced marketers expect lower conversion rates from syndication networks - but they also expect lower CPCs, and know that the ROI can be excellent.
On its own, a conversion rate can be misleading - it must be considered together with CPC to have meaning. In fact, it is easy to imagine an instance when a 5% click to conversion rate is less attractive than a 2% click to conversion rate.
Compare Campaign A, which had a 5% conversion rate and a $1.00 CPC with Campaign B, which generated a 2% conversion rate with a $.20 CPC. Looking at the conversion rates is misleading because Campaign B would generate twice as many sales as Campaign A. In other words, $1000 spent on Campaign A would generate 50 conversions while Campaign B would generate 100.
Knowing the secrets of the game is half the battle.
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Adam J. Epstein is the President & COO of adMarketplace. adMarketplace Keywords (http://www.ampkeywords.com) formerly known as eBay Keywords, is a PPC Management service open to all advertisers that tracks conversions and optimizes its advertiser's campaigns across thousands of contextually-targeted websites and search engines each day with no fees or minimum spend requirements.
