How much can you afford to pay for a click? Assume the click is from a qualified visitor - someone that lives in your geographic service area looking for your product or service. What can you afford to pay to get one new qualified visitor to your website?
Don't panic if you don't know the answer. Most contractors have no idea! As a result, many attack online marketing strategies such as Pay Per Click (PPC), Search Engine Optimization (SEO), Email Marketing and Social Media using ego instead of economics. Don't make this mistake and 2012 will be your best year yet!
Better Data = Better Results
To determine the most you should be willing to pay for a click or to get one new visitor to your website, you need a couple different numbers:
Figuring out the percentage of web visits that turn into leads is easy. All you need is Google Analytics (with goal tracking configured) and Call Tracking and Tagging (to determine which visitors call you and which calls are leads - vs. solicitations from SEO experts - wink, wink). If you don't have the time or the know how to set these tools up on your own, you can find several companies that will do it for you for a nominal fee.
Armed with this data, you need to figure out how many leads it takes to get a sale. To do this, you have two options:
CRMs are easier and they have a "do it for me" element to them, but they might be an additional cost you simply can't stomach right now. Salesforce.com is my favorite because it can be integrated with your website and other tracking tools, but it's also one of the most expensive solutions at roughly $65 per month per user and up.
If you're small, you might prefer to simply log each lead in an Excel spreadsheet and update it as you convert leads into sales. There's nothing wrong with this approach if you're organized and on a budget, but the key is sticking to it.
The final number should be pretty easy (if you have your financials set up correctly and you're using something like Peachtree or QuickBooks). In the first column, list each line of business or product. In the second column, create a heading titled, "Average Revenue". In the column next to that, create a heading titled, "Gross Margin."
If your average revenue per job varies wildly or your gross margins vary by job size, then break things down further and create rows for small, medium and large (and list the average revenue per job and gross margin separately).
Once you have all your key numbers, you should be able to figure out how much you can afford to pay per click or visit.
Take the percentage of gross margin you're willing to give up in order to acquire a new client or job (if you're profitable and growth oriented, it should be at least 50%) and multiply it by your Lead-To-Sale Conversion Rate. This gives you the most you should be willing to pay per lead.
Now, take this number and multiply it by your Visit-To-Lead Conversion Rate.
This gives you the most you should be willing to pay per click!
That wasn't so hard, was it?
Now, ask yourself - which marketing strategies allow you to get visitors to your site at or below what you just identified as your max cost per click. From here, it's as simple as: TRACK > TEST > TWEAK > REPEAT.
Happy hunting!
Comments (4)
This is a great article. Thank you been. Do think this approach would be superior to doing a graph of straight ppc costs vs total leads or total sales and looking for signs of diminishing returns?
@Metro M & L. Short answer: Yes! You need to see the leads that came specifically from PPC (vs. other sources).
It is hard to get the # right... we are still tryong to keep perfect track of where the leads are generated from
@expertstormrepa - let me know if I can help. We have a (relatively) easy way to do it. It's not free, but it works and the cost is nominal compared with the money you can make/save by optimizing your advertising