In PPC there are "clicks" but then there are "clicks"!

I have been experimenting with the Pay-Per-Click campaigns and I paid a rather expensive tuition to learn how to get some positive results.

I used Google Adwords and Analytics. To use the method below, you need some sort of comparable system to keep track of what exactly is going on with the PPC campaign.

In addition, I had both image (content network) and text ads. So far the image ads have produced the most income for my product.

One of the things I did wrong was take the advice on how to calculate the maximum bid for clicks from a Web site. It suggested that you take your budget and divide it by the profit margin for your product to determine the number of units you would have to sell to cover the costs of the PPC campaign.

You would then take this calculated number and divide it by your conversion factor (the ratio of one sale to the average number of clicks needed to make that sale).

This would give you the number of clicks you would need to make the sales needed to cover the costs of the PPC campaign. The basic math is shown below:

Product Margin: $8.00
PPC Campaign Budget: $240.

Sales needed to payback advertising budget = $240/$8.00 = 30 Units sold

Average conversion rate: 10 Sales/Over 252 Clicks = ~ 4%

Number of clicks needed to sell 30 units on average: 30/4% = 30/0.04 == 750 Clicks

Maximum Bid Price: Campaign Budget/Clicks Needed = $240/750 Clicks = $0.32

The thing wrong about this method is that your conversion rate really depends on the quality of your clicks. And by quality what is meant is how likely is the click going to be converted to a sale (the conversion factor which is 4% in the example).

By following the formula above, the less likely the conversion, the more clicks you need. The more clicks you need the lower the maximum bid price for the click and the less likely the conversion.

So if you follow this formula you wind up paying almost nothing per click but you have a huge number of clicks that you costs you money but don't generate income.

The method that seems to work is to first set your monthly budget to a relatively small number to give you freedom to experiment without breaking the bank. Then carefully select your keywords and content to target your market. This is very important because it will impact your sales results and can misdirect you.

Also, limit the number of both keywords and content so that it is manageable. I have found that there is no reason to make huge lists of both. Also, with a limited budget, you will spread the results so thin that you won't be able to tell what is going on. Besides what usually happens is that most of the click through will occur on a few keywords or content sites and a few of those will generate any income.

Google Adwords gives an estimate for the bid required to make the first page. I generally go with that initially and then tweak it and observe the results.

A word of caution, some of the keyword bids are astronomical -- I have seen as much as $15.00 per click. Unless you have a huge budget stay with affordable keywords.

When you start to see what is going on, eliminate the deadwood and add more keywords and content similar to the more successful ones in the current lists.

Another thing that I have found is that it is okay not to use your entire daily budget. In fact, that is a good thing. Keep adding the more effective keyword and content sites until the daily budget limit is hit.

If sales keeping increasing then top out when the daily budget is hit, then increase the daily budget by a few dollars. It may take a week or more of collected analytical data to make a reliable judgement of what is going on.

If sales increase with the increase in budget repeat the increase. As long as sales track upward, keep increasing until the daily click costs is less than the daily budget. If the increase in daily budget does not result in an increase in sales volume look at which clicks are producing more costs than revenue and then either remove those keywords and content sites or decrease the maximum per-click bid. Conversely, look at the keywords generating the most revenue and increase the maxumum bids slightly. This should move you towards the top of the page -- at least until the competition increases their maximum bids.

Again this should be done incrementally until the costs for the clicks is less than or equal to the revenue generated by those clicks -- preferably much less than...

When the daily costs per clicks falls below the the daily budget, add more keywords and content sites using the more effective ones on the lists as guides. Do this until the click costs reaches the daily budget or sales do not increase. If the budget limit is reached and sales increased up to that point, then increase the budget. If sales don't increase, again prune the deadwood and add more of the effective keywords -- this might mean removing some of the new words that were added.

Keep repeating this process as long as the results are positive with increasing sales.

Good luck!