Is Pay-Per-Click killing your online business?

by: Joshua Strebel

With Pay-Per-Click costs on the rise (Google reported a first quarter net profit of $1.3 Billion) is your PPC campaign killing your business? Average PPC rates are around 50 cents per click with prime terms and position going for as much as $100.

Background: For those that may not be aware, Pay-Per-Click advertising is the process of purchasing ad space among the natural (organic) search results on the major search engines. Advertisers create text ads and bid on position for inclusion into the “Sponsored Results” section of the organic search results for their chosen keyword. Each time a web surfer clicks on the Advertisers ad, they are charged a fee for that click. Fees range from as little as .05 cents or as high as $100 depending on the competition and desirability of the keyword.

Now, this is no guarantee that the visitor will actually do anything on your website, yet none the less you paid for that click. Also a recent class action lawsuit filed by Click Defense, a company which aims to monitor click fraud and gain refunds for clients, vs. Google, estimates click fraud (automated programs to repeatedly click on ads to drive up competitors costs) to be around 38%.

Quick Math: So if your PPC budget is $1000/month. And your average Cost-Per-Click (CPC) is $1.00 = 1000 visitors per month right? Well if we subtract suspected click fraud of 38% surely you now have 620 qualified visitors right? Well even the best websites only convert around 4.8%, and your average website converts at 2.4%. Your price point is $50 for your widget. 14.88 customers purchased your $50 widget for a grand total of $744. A loss of $256. And you do this month after month after month.

A Better way: Enter Search Engine Optimization (SEO). Search engine optimization is the process of: wait for it… optimizing your website to achieve top rankings on the search engines. Through detailed look at your marketing and sales goals, rankings competition analysis, and good old fashion hard work, quality SEO services will push your website to the top of the search engine rankings for your chosen keywords “fancy widgets”.

Rankings = Traffic = Sales = Revenue

Due to the hard work of your SEO firm, when someone searches for your keywords “fancy widget”your website is listed among the top 3 positions in the organic listings. 65% of web surfers click on the organic listings over the sponsored PPC listings. Ready for some more numbers?

There are 100,000 searches performed each month for the keyword “fancy widgets”. With your PPC campaign you get an average of 25,000 impressions on your ad before you reach your monthly budget of $1000 and your ad stops showing. You miss 75% of all searches. And at a loss of $256

More Quick Math: Meanwhile your organic listing (SEO) among the top 3 results gets all 100,000 impressions. Of that 65% will click on organic results (see above) 65,000. Of that 65,000 you get 25% because you are among the top 3. That is 16,250 visitors to your website, you then convert 2.4% – 390 customers who bought your $50 widget = $19,500. Not a bad return. Now this is a “perfect world” scenario but I think you get the idea.

So what did the SEO cost you? Well a typical SEO firm will bill around $3k down payment to optimize your website, and a monthly retainer of around $1k for a period of 6 months to continually SEO your website and build your link popularity. SEO takes time and does not happen over night. If anyone tells you they can get you to #1 in less than 3 months they are lying, oh and if they even mentioned a #1 position, they are lying. As in life nothing is guaranteed. So your 6-month contract cost you $8,000. Simple ROI Chart below.

Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Total
PPC -$1,000 -$1,000 -$1,000 -$500 -$500 $0 -$4,000
SEO -$3,000 -$1,000 -$1,000 -$1,000 -$1,000 -$1,000 -$8,000
Gross Sales $744 $744 $744 $3,000 $8,000 $19,500 $32,732
Gross Profit -$3,256 -$1,256 -$1,256 $1,500 $6,500 $18,500 $20,732
Rough ROI 172.7%

Take this to Month 12 and your Gross Profit is $137,732 for an ROI of 1147%
*Perfect world Example, may not reflect actual results

In summary: Is your PPC campaign killing your business?. Well yes and no. Many PPC campaigns are very profitable for the advertisers. Some company’s rely on PPC exclusively and are doing very well. Even if this is the case they could further grow their bottom line by adding an SEO campaign. With top listings in the Sponsored and organic listings they will surely get a boost in traffic and sales. For the company in the example above, their demise is forth coming if they do not make a change and get the traffic their online business needs to survive and grow.

Joshua Strebel is President of obu Web Technologies inc. the leading Arizona Professional web design and search engine optimization company. Reprint of this article must contain this paragraph. Copyright 2005, obu Web Technologies.

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