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Pay per click marketing has gone from a niche marketing tactic to a staple of any organization’s marketing efforts. And for good reason – super trackable results, data falling out your ears, no more faith based marketing, virtually real time feedback – I know many companies who spend 100% of their marketing budgets on PPC marketing alone (although longer term thinkers will certainly incorporate SEO efforts as well.)

With all the data it products managing PPC can seem pretty daunting. Which metrics are the best for your business – Click through rate? Impressions? Conversion rate? Some unknown uber metric?

All PPC-specific metrics are certainly part of the bigger picture, but when it comes to managing how much I pay for a given click I find it beneficial to look at how much profit that keyword produces.

Profit is a business metric, and ultimately marketing is about building business – not watching siloed metrics bounce around.

So, how does an enterprising PPC marketer pull this off? Read on…

First, segment your PPC traffic.

Make sure you’re only working with data that pertains to whatever PPC engine you’re optimizing for – Google, Yahoo, Bing, Ask… Attempting to optimize a given campaign with aggregated data is a sure-fire way to waste serious money. Make sure you’ve filtered out any keywords with low traffic volumes – you can’t optimize without significant levels of data. The definition of “significant” will be different for everyone, but I like to use 40+ visits as a baseline for consideration.

Identify the winners.

Once you’ve exported your campaign keyword data to Excel (yes, not everything is best served by a web interface), sort it by per visit value (this obviously assumes you have a per visit value – if you don’t know what that is and are using PPC marketing – call us.)

An unsorted keyword list

The same list, sorted by per visit value.

Now you’ve got basically 2 groups of keywords – 1 group with a per visit value and 1 without. Move move all negative value keywords over to a second sheet in your Excel file- we’ll deal with those later.

Calculate profitable PPC bids by keyword.

We now know what the per visit value is by keyword, but that means little without context. Now, we’ll factor in 2 variables:

• The difference in our PPC revenues & actual sales
• Our profit margin

Rarely will actual realized sales match our Analytics data so – rather than spend countless hours chasing the root cause of the disparity – we simply assume the difference is reasonably consistent across all keywords and adjust all per visit values down by that difference expressed as a percentage. Here we’re assuming a 15% difference:

Adjustment calculation.

All PVV values adjusted down 15%.

But we’re not done yet! We’re seeing a more accurate value of these visitors, but we can’t afford to bid based on gross revenue. We have to (as a previous COO once told me) “get closer to the bank.”

We do this by factoring in our profit margin on each visitor. Here, we’re assuming a 15% profit margin:

All per visit values adjusted for profit margin.

Much lower values, right? Next, conditionally format your profitable PPC cells against your actual cost per click. This highlights keywords that you are paying too much for:

Alright! Now we’ve got something to work with. Incorporate your other soft metrics (and a little more conditional formatting) and you’ve got a pretty good picture of what these keywords are doing:

Alter those bids!

If you’re working on an AdWords account altering these keyword bids is super quick – just jump into AdWords Editor, bulk adjust your bids so you’re paying less per click than you can afford, and BAM – you’re in the money. Of course you’ll need to factor in any secondary soft goal value (how much is a newsletter sign up worth?) so there are instances when you’d be willing to pay more than the profitable threshold, but at least you’d be making that informed decision.

What about those poor performing keywords?

Remember that batch of keywords we pushed to the other sheet? Managing those bids is a similar process, just weight the soft goals against the cost per click. I typically aim for lower placement (position 7-10) on these keywords unless they convert strongly on soft goals. Of course, any real stinkers (zero soft goals – high cost per click or overall cost) can be paused or eliminated altogether at this point.

Repeat this process for your content & placement targeting and you’ll have one smoking PPC campaign in no time!

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About Iris Professional Services
Iris Professional Services is a computer consulting company operating offices in both Seattle and Portland. Businesses throughout the Pacific Northwest rely on our expert IT consultants for all their network IT support services.