A little over a year ago, when I first started doing Pay Per Click Marketing on a serious level I made sure that I was tracking clicks and conversions. Doing so allowed me to split test ad copy and analyze my traffic to determine things like:
- Which picture attracted the most clicks
- Which ad was converting best
- Which demographic I was most successfully reaching
That’s all vital intelligence that allows you to dynamically react to and adjust a campaign, but as I gained experience with PPC advertising I realized there was an important proactive question I should have been asking that I wasn’t (not specifically anyway). That question was, should I be running this campaign in the first place?
In Pay Per Click affiliate marketing (and pretty much every other business) your ultimate goal is to make money. If you make more money then you spend, your golden. Of course, “Me make more money then spend” is how a caveman might describe it. We should aim to be a little more precise when defining our objectives. To do that we have to look at all the variables that impact our ability to have a successful PPC campaign.
For me, that entails understanding the various components that make up a campaign, and then defining what success is.
Anatomy of a PPC Campaign
When you promote a product via Pay Per Click Marketing you create an ad and then use a service like Facebook Ads, Google Adwords, or Microsoft Ad Center to get that ad in front of a target audience. Because of this, you can literally get millions of impressions and thousands of clicks a day without any SEO work. It’s like turning on a fire hose.
Getting traffic this way is not free however, as each of the aforementioned services charge you a certain amount every time a user clicks your ad, hence the name Pay Per Click (PPC). Which leads me to my first variable, Cost Per Click (CPC), and the ultimate question I would like to answer:
How much should I spend per click?
The reason why this question is important to me is because I kind of have a feel for how much Facebook charges per click now. I also know what types of conversion rates I can realistically achieve, and how much money I would like to make overall when running my campaign.
By understanding these variables and how they relate, I can quickly determine the minimum Offer Payout I will need to have a chance at being profitable. This lets me instantly rule out offers that look good but don’t pay what I need to achieve my income goals.
Let’s Take A Closer Look At These Pertinent Variables:
- Cost Per Click (CPC)
- Offer Payout
- Conversion Rate
- Return On Investment (ROI)
This is how much your search network (e.g. facebook) will charge you each time a user clicks your link.
How much you will be paid by the advertiser if a user completes the desired action (e.g. provides their email address, downloads a toolbar, makes a purchase, etc.)
This is the percentage of clicks that result in a conversion.
Example: 10 people click your ad, but only 1 person performs the desired action that results in your getting paid. In this scenario you have a 10% Conversion Rate
This is the percentage return you would like to see on your investment overall.
Example: if you spend $100 running your campaign and you make $200, then you made $100 more then what you spent (ROI 100%)
Calculating Max CPC
It’s been famously said that when the great Physicist Stephen Hawking began writing his book A Brief History of Time he was told by his publicist that for each equation he included in his book he would halve the sales. As a result, he only put in one.
With that in mind I will keep things simple by showing you the equation I use to determine Max CPC without taking you through its derivation.
I apologize for the blurriness of the equation. I am using the plugin (WP LaTeX) to render the math which converts the text to a .jpg image.
As you can see, the Max CPC is effected by the Offer Payout, the ROI, and Conversion Rate. Let’s see it in action.
Example: Maximum Cost Per Click Calculation
Consider an offer that pays $2.00 and converts 5% of the time. If my desired ROI is 30% then the most I can spend per click is $0.08 cents.
Since clicks are costing me around $0.40 cents these days on facebook I can quickly see that this campaign is not going to work out for me.
In fact, for a campaign to work for me within the above specified parameters the Offer Payout would have to be $10.50.
In the above example I used conservative estimates to determine what my Maximum CPC should be. But what if I had an 18% conversion rate? How would that effect my Maximum CPC?
A quick calculation reveals that now my Maximum CPC is $0.28 cents. Still not the $0.40 I need to green light this thing but definitely more doable.
If in addition to this, I also increased my Offer Payout from $2.00 to $2.90 then my Max CPC would be $0.40
Translation: By creating an ad campaign that converts at 18% I can target offers with a payout of $2.90 or more and still achieve a 30% ROI provided I don’t pay more than $0.40 per click.
Of course different campaigns will have different goals, returns, conversion rates, and payouts. Being able to quickly ascertain their viability will help you green light or can a campaign before you waste any time building it.
Maximum Cost Per Click Calculator