$10 per click - do they know something we don't?

“ Xenical ”

By Neal Lebar

I have utilized pay-per-click (PPC) advertising since its
inception about two years ago. With PPC, the advertiser is
only charged when a person actually clicks on their link.
The amount you actually pay for each click is referred to
as the cost-per-click (CPC). I've got to admit, I was
pretty leery at first. But since then I've watched the
price of certain search engine keywords skyrocket in excess
of $10 per click! The big question isn't how much it costs
per click but how many clicks does it take to get an
acquisition. I've often asked myself, why would so many
companies pay that much money for one single, measly, push
of the index finger? The answer is simple - it just works!

HOW TO JUSTIFY $10 PER CLICK

The advent of PPC advertising has changed Internet
marketing forever. It represents a free market in much the
same way as eBay -- controlled by a natural supply and
demand relationship. For a keyword phrase such as "debt
consolidation," the top five advertisers are willing to pay
cost-per-click charges of $10.01, $10, $9.99, $7, and
$6.97. My first reaction was, something has to be wrong
with this picture - it just can't be! So I looked at the
"life insurance" phrase, where the top five range from
$7 to $3.50. Then there are drugs like "Xenical" that
range from $6.76 to $6.74. There are many more examples
where the cost-per-click exceeds $6, $7, or $10,
but you get the point.

The fact of the matter is that while PPC advertising can
work quite well - it can also be a flat out failure. When
companies are willing to pay more than $5 per click, you
can be pretty certain that they have figured out how to
make it work - otherwise they wouldn't pay those prices.

THE SELECT FEW

I have seen many situations where PPC will work for one
company but not for another in the same industry, using the
same keywords. Large and small companies will venture in,
bid for a week or two, and then drop out -- never to be
heard from again. Some will come in, drive the prices way
up then drop back out to obscurity. The select few who are
successful have found the secret -- a combination of
patience, determination, creativity, keyword selection,
management and analysis. They do the math, every day -
they manage the bids, every day - they look for new
keywords, every day - they analyze the results, every day.
It takes a great deal of work to figure out how to make PPC
advertising deliver results, and the ones who have are now
benefiting - every day.

WHAT IS THE COST OF AN ACQUISITION?

In order to determine if your PPC advertising is justified,
the first thing you need to understand is your current
acquisition cost - what does it now cost to acquire a new
customer or order? It's amazing how few companies know
what their cost of acquisition is. To keep it simple, take
your total advertising expenditures and divide it by the
number of new acquisitions (orders or customers), that
should give you a rough estimate of your cost per
acquisition. Similarly, after running a PPC campaign for a
month, you take the total advertising expenditures divided
by the number of acquisitions. Of course, these raw
numbers are not burdened by administrative costs, but they
still provide an apples-versus-apples comparison.

I have managed PPC campaigns where the average
cost-per-click was $0.40 and others where it was $5.
The key question remains: how many clicks does it take to
get an acquisition? If the cost for each click is $0.40
and it takes 200 clicks for an acquisition, then the
acquisition cost is $80. If the cost for each click is
$5 and it takes 10 clicks, the cost of the acquisition
is $50.

FINDING THE GAPS

Two key points are crucial: (1) how much does it cost to
get an Internet acquisition compared to traditional
methods? and (2) what is the value of a new customer? In
some businesses a new customer is worth $1,000, while in
others, only $10. Typically, the cost-per-click reflects
this value, but since the market is still very small, there
are significant gaps. Remember the "debt consolidation"
keyword phrase above? The difference between the first and
last cost-per-click was about 30%. On the other hand,
there is literally no difference between cost-per-click
rates for the keyword "Xenical". From this you may
conclude that there is a lot more competition for "Xenical"
then there is for "debt consolidation". The opportunity is
between the gaps in the 30% differential example.

The bidding market for keywords is still so new and
untapped that it's rare to have more than three competitors
fighting over a specific phrase. The gaps in keyword
cost-per-click charges such as "debt consolidation" are the
norm and represent tremendous opportunities still available
in this media. Right now they are plentiful, and for those
few people who take the time to understand this important
marketing tool, the time to act is NOW!

ABOUT THE AUTHOR

Neal Lebar has proven that Internet marketing can generate
returns far greater than traditional media. For more
information, visit www.innovate-inc.com or e-mail
nlebar@....

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