Retail Blog

Google’s Adwords program is an extremely effective way to market your e-commerce storefront. However, if you are not careful it is also a very easy way to spend a large of money with zero return on investment. This article is an easy to understand introduction to the basics of Pay-Per-Click (PPC) advertising through Google’s AdWords program and the basics of calculating a return on your investment.

From Wikipedia:

AdWords offers pay-per-click (PPC) advertising, and site-targeted advertising for both text and banner ads. The AdWords program includes local, national, and international distribution. Google’s text advertisements are short, consisting of one title line and two content text lines. Image ads can be one of several different Interactive Advertising Bureau (IAB) standard sizes.

Simply put, AdWords allows you to buy traffic for your website based on keywords. If you operate a storefront online you are buying the opportunity to sell to a potential customer.

The Basics
AdWords allows you to create one or more advertising campaigns, each with a daily budget. The daily budget limits the amount of money that you will spend on any given day that your campaign is active. Each campaign has one or more ad groups that contain one or more ads that target one set of keywords or sites.

Directly from the source:

You set a bid, or price, for all the keywords or sites in the ad group. This is called a cost per click (CPC) or cost per thousand impressions (CPM) bid. You may also set prices for individual keywords or sites within the ad group.

For example, you may create a new campaign to promote your new online storefront. If you sell three different types of products you may choose to create three different ad groups. Each ad group has its own distinct set of keywords. Each ad group can also have more than one ad, which gives you the ability to try out different ad copy and determine which performs best.

The key to success in AdWords is planning. If you are selling products online your planning process should follow a simple pattern.

1. Decide which product to advertise and choose your “landing page”

What do you want to advertise? You could promote your company, a category of products, or a single product. For this example choose a product and then choose the page to which you will direct the potential customer after they click on the ad. The page you select is called a landing page, and there are many design factors that will affect how likely the customer is to purchase your product. These factors are outside the scope of this article. Google has many recommendations for designing a high-quality landing page, but for know choose the product detail page for the product you are advertising.

2. Find your keywords

What will your potential customer be searching for when they are looking for a product similar to yours? You can use Google’s Keyword Tool to discover potential keywords. From the tools menu, click Keyword tools and then select “The Site-Related Keywords” tab. From this screen you can enter the exact URL of your product detail page and Google will recommend keywords. For each recommended keyword Google will tell you how competitive the keyword is, and how much search volume there is for that keyword on any given day. Browse the suggested keywords and click the Add link. On the right side of the page there is a link that will take you to a screen where Google will estimate the number of potential customers you could find through your keywords. Finding the right keywords is difficult, so don’t spend too much time in the beginning trying to find the perfect keywords. After you have run several campaigns you will have a wealth of information available about which keywords worked and which did not.

3. Write your advertisement

The restrictions on the length and content of AdWords is frustrating to some people. I have always found the restrictions to be refreshing. AdWords gives you the ability to succinctly communicate the value of what you sell, and it forces your competitors to work within the same restrictions.

4. Activate your campaign and measure your results

Once you have chosen your keywords and written your advertisement you are ready to activate your campaign. The next step is the most crucial: measure your results. The only way to build an effective long-term AdWords advertising campaign is by continually refining the campaign to remove what does not work and focus on what does work. Google offers many excellent tools to help you refine your AdWords program, including Google Analytics and Google Web Site Optimizer

How to Measure the Return on Your Adwords Investment
You have found the keywords and ad copy that will bring traffic to your site. That’s great, but are you recouping your investment in AdWords? Measuring ROI is tricky and the appropriate method will be different depending on which industry you are in, though a basic e-commerce example is simple.

AdWords tells you the average cost of each potential customer and the total cost of your campaign, but it is up to you to find out your actual customer acquisition cost.

1. Find your average Cost Per Click (CPC) and total clicks

AdWords will report your campaign’s average CPC and total clicks for you.

2. Find your customer conversion rate

How many widgets did you sell on the day that your campaign ran? Take that number and divide it by the total number of clicks. For example:

If you had 1000 clicks and made 30 sales, your conversion rate is 30/1000 = 3%

3. Calculate the real cost to acquire a customer

Calculating the real cost to acquire a customer is simple:

Cost to Acquire a Customer = (Average CPC) / (Conversion Rate)

If the average CPC for your campaign is $1 it is tempting to think that your cost to acquire the customer is $1. The fact is that 97% of the potential customers didn’t buy the product after clicking on your advertisement. So the real cost to acquire one customer is actually $33.33, or $1/3%.

What Should You Do If Your ROI is Negative?
It is possible that your gross profit will be less than your cost to acquire a customer. Whether this is a bad thing will depend on what kind of product you sell and how good you are at converting one time customers into repeat customer.

1. It is not necessarily a disaster. If the products you sell are non-durable or disposable, try to convert the one time customer into a repeat customer. Each successive purchase will have an incremental cost of zero and will enable you to recoup your cost to acquire the customer.
2. Decrease your average CPC by bidding less for popular keywords
3. Decrease your average CPC by bidding on more specific terms

That was AdWords the easy way. For more advanced details on using AdWords keep a look for blog posts from experts. Social bookmarking sites, such as del.icio.us, are a great way to keep tabs on interesting and relevant AdWords content.