One thing I really enjoy about working from home and on my own is not having to worry about dealing with a boss and their ill informed decisions. A friend of mine works as an inhouse web analytics specialist for a large company. His company spends over $100,000 per month on Google Adwords. I imagine that they make Google very happy. However, despite my friend’s recommendations and advice on how to maximize their campaign effectiveness they only generate $100,000 in gross sales, not including expenses, from the ads. They justify this expense with the belief that they will be making long term clients that will make money on those clients’ second purchase. As a web marketer I can think of thousand better uses for the large sum of money (i.e. giving to money to me J ). The point of the story is not to show that big companies waste money, because I know many small businesses that do the same thing but on a smaller scale, but to really understand if the money was a waste.

So did they waste money on Google Adwords? Are you wasting money on Google Adwords?

Your best defense, against Adwords waste, is the following 3 things:

  • Know how much a visitor is worth today
  • Know how much a visitor is worth tomorrow
  • Know which keywords perform

Knowing how much a visitor is worth today

First step to knowing how much a visitor is worth is to track clicks to sales ratios. If you are not tracking this information you might as well set you money on fire or better yet send the money to me. Google Adwords when used with Google Analytics is all you need to track this information. Depending on the type of online business you run you may or may not have set costs to products and set expenses. One recommendation is to use Adwords for products where you can control both the price and the cost to you. I’ll explain how to achieve this in another article. We will use an example of a company whose typical sale is for $100 and their profit is $50. Generally, a topical site will cause 2% of all visitors to make a purchase or make contact. So for every 50 visitors they make $50. So in theory as long as your Pay Per Click (PPC) is below $1 then you are making a profit from Adwords. This is not always the case therefore you must…

Know how much a visitor is worth tomorrow

Back to the example of my friend’s big company which actually looses money with Adwords. You might be wondering, why do they do it? The answer is simple: customer acquisition. Customer acquisition is the process of acquiring or obtaining new customers, and/or converting prospects to customers. They know that over a client’s spend cycle they are worth several times more than the cost to initially acquire them. However, be aware that this is not always the case. For online businesses maintaining clients can be just as expensive as getting them in the first place. You will need to have a system in place to manage existing clients, preferably an automated newsletter or notification system that keeps you always on your clients’ minds. Therefore it always best practice to take a pessimistic view that the client will only buy once from you. Remember the saying: Don’t count you chickens before the hatch. It is still good advice that applies to online business. So with this advice in mind is best optimize the return of investment or understand click to conversion ratio. To do this you must…

Know which keywords perform

Not all keywords were created equal. If you read my previous articles on how to build keyword lists you should have a rather large group of keywords to test with Adwords. Realize that many of these keywords will be either too broad or too expensive to use in your campaigns. So you will need to clean the list a bit before using it. However, once you run your campaign you will find some keywords will bring more clicks to your site and also you’ll notice that some keywords will have higher conversion ratios from click to sale. The funny thing is these two things don’t always happen with the same keyword. Sometimes a keyword that doesn’t receive many clicks actually has higher conversion ratio and the opposite can be true too. By selecting the keywords with the best performance rates, you can increase your sales and reduce your costs. I’ll explain in my next article how determine which keywords to keep and which to dump.

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For help with managing your Google Adwords campaigns, please feel free to contact me at 905-417-9470 or by email at allanp73@gmail.com