I’ve had a few people contact me recently to look at the viability of using Adwords to promote their online stores and unfortunately I’ve had to highlight some reasons why I didn’t think it was right for them, at this stage.
If you’re considering using Adwords to drive sales then the following might help you quantify what you can expect and whether it can become a profitable channel, and what changes you need to implement to make it profitable.
How Much Traffic Can You Expect?
The first place to start is to see how large the market is for your product on Google. This can be done a few ways but the easiest is to use the Google Keyword Planner. This is a free tool inside your Adwords account which will let you research potential keywords and traffic numbers for those keywords. You can use this tool before sending your campaign live but make sure you properly set the location to Australia or a more specific location to get the correct numbers.
This tool will give you the average monthly search numbers for keywords Google thinks are related to your website or product. I’ll create a proper user guide for this tool in the coming weeks but what you can do is go through the list of keyword ideas and find all the ones related to your product, then “Add to Plan”.
You want to leave out any keywords that you don’t think will lead to a targeted customer. For an example let’s say I have a site selling my own brand of golf bags. I don’t sell any of the major brands so Callaway, Wilson, Titleist etc would be left out. Mine aren’t leather so those would be left out as well. Be honest about the search terms and your products so you get a somewhat accurate idea of the market size.
Once all of the relevant terms are added to the plan, click on “Review Plan” to get some statistics for your market/product.
Click on the Search Volume Trends link in the left menu and pay attention to the Search Volume Trends graph at the top of the page. These are the number of people/searches occurring for your products each month.
For the golf bags keywords I’m seeing a spike around Christmas but the monthly average for the rest of the year is about 4000 searches/month.
Now I have to be clear that these are only estimates based on previous data, products trend and go out of fashion. The only way to be sure if to run a trial Adwords campaign to get real world data. You’ll quickly get an idea of the number of searches by running your campaign for a few weeks.
How Much of this Traffic Will Get to Your Website?
Not all of these 4000 searches will actually go to the website. Even if your ad is sitting in the top spot then it could still be as low as a 5% click through rate. If you really nail your ad copywriting then you might push it to a 10% click through rate. That cuts the numbers down to as low as 200 to 400/month…
Make sure you take into account the click through rate from your ad when looking potential traffic numbers.
How Many Can You Convert to Become a Customer?
This can be a bit depressing for new businesses but it’s hard to convert a visitor to a paying customer on even the best ecommerce platforms. If you can hit a 3% ecommerce conversion rate on new visitors then you’re killing it. The average is actually less than half that.
Out of the 400 visitors you might get to your site looking to buy a new golf bag, only 12 might buy in the month. If the average golf bag on your site costs $200 then that’s a potential for $2400 in sales/month. Not a lot if that’s all the website sells.
Remember to factor in your site’s conversion rate when predicting sales from new visitors and to get a monthly sales estimate from the Adwords channel.
What Are Your Profit Margins?
Adwords isn’t free and you have to look at the average cost per click along with your conversion rate to calculate your average Cost Per Acquisition (CPA). The Google Keyword Planner gives you some estimates for bid costs which you can do for an early estimate. The golf bags example I was using had a average cost per click ranging from $0.35 to $0.80. For this example I’ll estimate my average clicks to be $0.50c ea.
Golf Bags CPA (with a 3% Conversion Rate) = (100 / 3) x $0.50 = $16.67
So, it costs $16.67 to sell one golf bag using Adwords. Is your profit margin large enough to cover this cost or are you acquiring customers at a loss?
How Many Times Will That Customer Buy?
More than once, regularly – that’s what this answer really needs to be.
There is nothing wrong with making a sale through Adwords at a loss if you can get that customer to buy multiple times throughout their lifetime. This is actually the key to making the most out of Adwords: you want that customer to come back time and time again OR you want to make them buy more than just the original product during the checkout process. If the above numbers don’t work in your favour then this is an area where you can turn Adwords into a money maker for your business. Find a way to increase the lifetime value of your customers.
A shop that only sold non-branded golf bags couldn’t expect to use Adwords as their only traffic channel as the numbers aren’t there to support it. A golf bag lasts a long time so the customer has no reason to come back and buy again. If that shop offered other products on their store, more consumable type products such as golf balls and accessories then the average order size will increase and the customer has a reason to become a return buyer.
Be Honest with Your Numbers
I recommend that everyone looks at these numbers before looking at using Adwords as a traffic channel, or better yet, before they get too deep into creating their online store. If the search volume isn’t high or the cost per acquisition is unprofitable then you really need to find out a way to increase your average order size and make each customer buy more than once. It will give you the freedom to be more aggressive in your Adwords campaign and create a channel that will drive the growth of your business.