Pay per click is a common online marketing strategy, but many people don’t make a profit off of it. In fact, many people are not even clear how to go about figuring out if they are profitable or not.
Profit is simply revenues minus cost, correct? In this case, it would be the revenues produced by the sale of a product on your site minus the cost of purchasing clicks to get that sale. For example, my profit would be $2 on a the sale of a widget on my site for $10 if it cost me $8 in PPC advertising cost, right? Ummm…no.
When analyzing the cost of your pay per click efforts, it is important to take into account the full scope of revenues and costs to determine the profitability of the campaign. One has to step back from the marketing effort and take a bigger look at the business.
On the revenue side, you obviously have the price a produce or service is sold for. If you are shipping something, however, you need to include that cost as well. Let’s use our example above. I sell my widget for $10 and I also charge $3 for shipping. My total revenues from the sale are $13.
On the cost side, we already know I spent $8 on clicks with my PPC efforts. This is not the total cost. I also have to figure out the cost of the widget to me and the shipping cost. Let’s assume I buy the widget for $5 at wholesale and it costs me $2.50 to ship it. Adding these numbers together, we find my total cost is now $15.50. What previously seemed to be a profitable campaign is, in fact, a loser!
Many people will take the expense calculation a step further. They will also add the cost of handling the transaction. This will be represented by the fractional share of the cost of hosting the site, processing credit cards and so on. I usually only do this on much larger sites, but it is something to keep in mind when analyzing your PPC efforts.
PPC can make you a lot of money or cost you a lot. Make sure you take into account all expense and revenue factors applicable to your site when making the determination.
Halstatt Pires provides PPC campaign management services at http://www.MarketingTitan.com