In the years ahead Internet Marketing is only going to get increasingly competitive.
That’s especially true in pay per click advertising.
It’s essential that you learn how to make the numbers work; often you may need to take a loss on the front end in order to acquire a customer.
This is the reality we all face if we’re going to stay in this game.
How Much is a Click Worth?
To define this, you need to know the following:
- Conversion Rate
- Lifetime Value of a Customer / Subscriber
Profit x Conversion Rate = Value of a Click
$30 x .01 = 0.30
$30 x .05 = 1.50
In the example above, if you have a profit per sale of $30.00 and you have a conversion rate of 1-percent, then each click has a break-even value of .30 cents. IE, you’d spend $30 on 100 clicks to make $30.00. If you have a goal of 100% ROI – of earning twice what you spend – then you can only spend $15.00 or .15 per click.
Increase your conversion rate to 5% and you can spend 5 times as much.
- What you can spend is predetermined and limited. They control the conversion process and have all of the back-end.
- If you’re generating leads in the process, then what you can spend is POTENTIALLY significantly better.
If you’re competing with other affiliates who are not building a list, and you’re both generating approximately the same conversion rate (controlled by the merchant) then the affiliate that will eventually win is the one that makes a move to build a list.
That affiliate can afford to break even (and spend twice as much for a click) because she has a back-end. If that affiliate builds a list on all of her efforts, eventually she’ll become one of the most powerful players in the market – merchant or not.
Because the person with the power is the person who controls the flow of communication.
ROI (Return on Investment)
My opinion of ROI is that it’s one of the most misunderstood, deceiving and wrongly used terms in Internet Marketing.
In fact, given that it’s a term for investing, it probably doesn’t have a place in this discussion – and you need to understand why I believe this.
Let’s start by understanding what ROI IS:
- How much you get in return fro what you spend.
- ROI = Net Profit / Ad Cost
- 33% ROI = (1000 income – 750 expense) / 750 expense
In this example, $750 is spent on advertising and $1000 in sales is generated in return. To determine ROI, we subtract the expense from the income (1000-750=250) and divide that by the expense (750) to determine we have a return investment of 33-percent.
- 300% ROI = (3000-750) / 750
- The positive gain from a business operation after subtracting for all expenses.
- In other words, how much you get to put in your pocket
Using the original example, that simply “I spent $750 and made $1000 in return. At the end of the day, I put $250 in my pocket.”
Perry Marshall didn’t write the following and frankly, I don’t know what Perry teaches on this subject. But the following post is the prevailing belief system on the topic of bidding strategy and ad placement.
“I like Perry Marshall a lot. One of the things he also says is that the number one [ad spot] is triggering a lot of ‘happy clickers’ people that click on an ad without really searching for it. This results in low conversion rates on the backend of your system … you do not sell to these people. Depending on your type of business you’d be better try to get to place 3,4,5 or even lower. It is proven that the further down you are the better your conversion rates tend to be.”
I could tear this post up with all of the “couldn’t be farther from the truth” statements in it. But go read any forum discussing Adwords and these words represent what most believe ‘reality’ is.
If this is what people want to believe, fine.
But if you believe it after going through and applying all my training you are getting here, I will get on a plane and personally bitch-slap your ass.
I want you to keep your trap shut on most everything I’m sharing – because the fact that most people believe this nonsense works to our favor . . .