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Are Google Ad-Words Worth The Cost?

December 4, 2017

Getting to the top or even to the first page of Google searches is invaluable for any online business, and with Google ad-words you can pay to get on the first page. Most people using Google search will not be able to differentiate between an ad or an organic search result. The question, however is, is it worth the money to buy your way to the top with ad-words?

 

The answer is not a simple yes/no. There are a lot of variables that determine whether buying position for a keyword is worth the cost to an online business. Among these variables are:

 

  • Cost per click

  • Cost of SEO effort vs Adwords

  • Customer Acquisition Spend

  • Ad-Words vs Facebook/Instagram Advertising

 

Cost per click(CPC)

To find out the 'cost per click' amount you will pay for google search result positioning, you simply go to your Google webmaster adword planner here and find a suitable keyword phrase for your business. As you set up your adword campaign, you will come to a screen like the one below:

 

 

The number of clicks predicted per month, divided by the cost per month will tell you the cost per click for that keyword.

 

So, how much is a click from ad-words worth? The answer is that it depends on a number of factors. The most rudimentary way to calculate the value of a click would be something like this:

 

Value of  a click = (Customer conversion rate x Revenue generated per sale x Profit margin %)

 

Example:

Customer conversion rate = 1/100

Revenue generated per sale = $50

Profit margin percentage = 20% (1/5)

 

For this example, a click would be worth 10 cents.

 

This, of course, does not take into account many factors such as:

 

  • Return rate of acquired customers

  • Loss leader product strategy

  • Marketing budget/strategy factors (e.g. Does the marketing strategy have built in losses for customer acquisition?)

 

However, this is a good starting point for calculating if ad-words is worth it for your business.

 

Cost of SEO Effort vs Ad-Words

When determining whether an adwords campaign is worth the price tag, it is useful to compare it against the cost of an offsite SEO campaign that could achieve the same result. Offsite SEO will never achieve 100% predictable results, because there are so many factors involved in getting a web page to rank, but experienced offsite SEO experts will be able to provide reasonably accurate predictions of the number of hours it will take to create a sufficient number of high quality back links to get your page to rank for a key word.

 

Customer Acquisition Spend

Many businesses will judge the relative benefit of ad-words in a manner that is completely divorced from using it to sell products. For some businesses, the importance is geared purely towards acquiring new customers. A good example of a company that might evaluate ad-words like this is an online dating app or website startup. 

 

The most successful dating app today, Tinder, in the early stages of their customer acquisition strategy, would not have been concerned about revenue coming from clicks, because their strategy at that point was to create a large community of users that would spread the word about their product. Each new user was a marketing vehicle in itself. It was only when a large, worldwide customer base was established that they began to deploy revenue strategies. In the early stages a startup company like this will measure any customer acquisition channel against their budgeted acquisition cost, rather than against revenue.

 

Ad-Words vs Facebook/Instagram Advertising

When making a judgement about which platform will be the most effective for an advertising campaign, it is important to look at the pros and cons of each of these platforms and also to look at which channel will be the most likely place that a prospective customer will start looking for your product.

 

Some advantages of each:

 

Facebook

  • Allows targeting based on a large database of knowledge about the potential customer.

 

Instagram

  • Primarily visual medium that might be more effective for products where visual appeal is the major factor. Advertising of fashion or beauty products for example may be more effective on Instagram.

 

An advantage of adwords over these advertising channels is that on Google, your ad will only be seen by users who are actively looking at your keywords, which suggests that they are closer to being a potential customer than someone who sees an ad passively.

 

Conclusion

This recent Forbes article spelled out 5 key reasons why ad-words may no longer be a cost effective form of advertising for small businesses. It's hard to argue that for small companies, with tight marketing budgets, the cost is too much. However, the only real way to determine whether using ad-words works for your business is to experiment.

 

A great advantage of ad-words(and this applies to Facebook and Instagram advertising too) is that you can find out whether an ad campaign will produce results for very little money, by limiting your budget. You don't have to commit large amounts of cash up front to determine whether it's worth it or not.

 

 

 

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