PPC click costs are likely to continue to increase. There are many reasons they would continue to rise rather than decline including:
1) More corporate advertisers with large budgets will continue to increase their online advertising spend. They can afford much higher click costs than smaller businesses.
2) Serious online businesses will continue to improve their conversion rates and as they do they can afford to bid higher.
3) As buyers have more online businesses to choose from conversions for all advertisers in that business tend to decline unless demand is increasing faster.
4) Google's system "learns" what keyword phrases are related and over time those that originally have low competition, low click costs, and high conversion rates are "assimilated" into other more general keywords.
5) The percentage of traffic coming from search engines like Google is likely to decline in relation to the amount of traffic coming from parked domains, social networking, and other sites that usually have lower conversion rates.
Here's an example of how that last factor can affect sales:
Let's use an example of 1000 clicks:
[NOTE: I chose these percentages at random and used 50% to make it simpler. I do not know what percentage of Google's traffic comes from Google and what percentage comes from their search partner network and that will vary depending on what is being advertised and due to natural traffic variances across different sites.]
For this example, let's assume these conversion rates:
50% Google search converting at 1.5%
50% Google search network partners converting at 0.7%
1000 x 50% = 500 x 1.5% = 7.5 sales from Google search
1000 x 50% = 500 x 0.7% = 3.5 sales from Google search partners
Total sales 11.0
35% Google search converting at 1.5% sales
65% Google search network partners converting at 0.7%
1000 x 35% = 350 visitors x 1.5% = 5.25 sales from Google
1000 x 65% = 650 visitors x 0.7% = 4.55 sales from partners
Total sales 9.8
Decline of 1.2 sales from each 1000 visitors
Use your average number of sales and average revenue per sale to calculate how much that type of change will affect your revenue:
Number of visitors divided by 1000 times number of sales per 1000 times average revenue per sale
EXAMPLE:
100,000 visitors divided by 1000 = 100 x 11 = 1100 sales
100,000 visitors divided by 1000 = 100 x 9.8 = 980 sales
If your average sale is $60
1100 x $60 = $66,000
980 x $60 = $58,800
This is a decline of $7,200 (almost 11%) and equates to a higher decline of profit percentage because the cost of advertising is spread across fewer sales and lower revenue.
When using PPC advertising you must continually be increasing conversions and profitability and adding new products/keywords/ads just to maintain your current level.
To grow a business you must be able to increase results faster than the natural tendency for them to decline and then some.
It is always best to have as many sources of traffic as possible so that an issue with any one of those sources does not decimate your business.
Search engines are likely to become less critical to driving sales as Internet users use various forms of recommendations such as friends who are now online, reviews, social networking sites and as they make repeat purchases from businesses they have previously patronized.
There is a definite advantage in getting established early and developing continuing relationships with buyers.
[ Message was edited by: flyingrose 04/03/2007 07:10 pm ]
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