How Much Does a Click Cost? (in Paid Search)
Google Adwords and Bing are very popular and effective ways to find and engage with potential customers and we frequently get asked by prospective clients about how much paid search advertising on these platforms costs. However, it's not a straightforward questions so when we answer the question with 'it depends', we have to put it into context. Let us explain...
Effective (profitable) paid search campaigns clearly have to deliver more in profit that the campaign costs to be worth the investment. Therefore, how much someone is prepared to bid on a term is directly related to the amount of profit they can make from a click.
The maths isn't hard. You take your lifetime customer value and multiply by profit margin (as a percentage) to get a lifetime customer profit value. Then you need to multiply by your website conversion rate, again as a percentage. This then gives you a profit per visitor approximation.
For example if your lifetime customer revenue is £2,000 and your profit margin 25% and your conversion rate is 10% then your average profit per visitor is
£2,000 x 25% x 10% = £50.
This is very simplified and different traffic will have different conversion rates. Even within campaigns different keywords will perform better. However, you can work out the same calculation for the value per keyword if you have the data (which isn't that hard to get!). In our example we would be prepared to pay up to £50 per click for the keyword that delivered those metrics.
This cost analysis puts the bids per keyword, that the graphic to the right shows, into context. With bids on the increase after the change in the Google SERPs (Search Engine Results Page) it makes sense to review your bids and your PPC campaign performance to ensure that you are still bidding profitably. After all, you don't need to be bidding £148 per click to be over-paying on your Adwords campaign.
If you are unsure whether your Adwords campaigns are profitable or not, why not get in touch today and we can check out your account and have a chat about how we might be able to help you make it leaner, meaner and get better ROAS (Return on Ad Spend) for your business.
*Note thanks to SEMRush (one of the data tools we use in our work), Empirical Research and Chris Lake for compiling this research and the interesting insights.