.
The importance of analytics.
Analytics are best understood working backwards and beginning with your sales objectives. At the base is the “allowable” – the maximum cost that you should consider to achieve your goals. Typically, allowables range anywhere from 10% to 25% of your gross sales, depending on your profit margins and the competitiveness of the market. Most direct marketers use about 20% as the beginning point.
Going back to the CPA example we have been using all along, the way to calculate your average sale is to divide your total revenues into your number of clients as follows:
In looking at the $6,878 number in the context of an Adwords campaign, your first approach is to determine how much you will pay per lead, a lead being a person who has clicked on your website, registered and downloaded something that gives you permission to contact him/her:
You can adjust the numbers any which way, but, ultimately, you will need to track just how many people landing on your site are turning into customers, which is why your offer and site are so important. If your site is not set up to quickly take the visitor into the registration process, your conversion ratio will plummet and your cost per sale will increase.
At this point, you should be considering a range of anywhere from $7 to $20 per lead and, to be safe, you should consider a lower number. That is, you should assume that you will be converting customers at a very low rate.
Your second calculation will take you directly into the cost/keyword or cost/click you are willing to pay.
A cost per click will typically range from $0.07 to $0.62. Naturally, the quality of clicks you will get a $0.62 will be much better than the quality you get at $0.07 because your ads will be placed higher.
Essentially, what you are saying is this:
- I can spend about $1,400 to generate one client because my average client spends $6,900 with me
- I might need as many as 20,000 clicks, however, to generate the ONE client, so, $1,400 divided into 20,000 = $0.07
The huge numbers involved (20,000 clicks to get 1 client) bring forward the need to:
- Have the best creative product you can have
- Have a well-thought-out website with a streamlined and effective response device
- Test all variables
- Fine tune your ad efforts all the time
Next chapter: Creating an Adwords campaign from scratch.
Related articles:
Small Business Building the Better Marketing Mousetrap
Seven Actions You Can Take with Your Customers
Creating Real Strategies for Small and Medium Sized Businesses
