Pay Per Click is becoming more and more well known as a cost effective and efficient way of advertising. A lot of companies that are just starting to venture into the pay per click space are experience great results, but could experience even more return on investment if they would use the proper analytics to “close the loop.”

Let me explain by outlining a common scenario:

  • Company does research and keywords, and bids on them
  • They see some traffic come in, and sales go up
  • Happy to get more sales they increase their budget and bid on more keywords

At face value this seems like a great situation (and don’t get me wrong, it is.) After all, this is how advertising has worked since it’s conception. You have a general idea of how many people saw your message, hopefully sales go up and everyone is happy. However their are some key metrics missing that could help close the loop between advertising and return on investment.

What You Should Do

Rather than upping budgets and keywords it would be more effective to spend the time to figure out how to measure the success of the campaign beyond just click through rates and traffic. This is done by defining what your “conversion points” are and how much those conversions are worth.

What is a Conversion?

A conversion put simply is when a user completes an action that you would like them too. This could be purchasing a product, filling out a contact form, or signing up for a newsletter.

Once you have assigned a value to those actions (for example, I a lead from a contact form is worth $100) you can then use that data in your adwords campaign to see which keywords/campaigns/advertisements are actually successfuly developing leads for less than $100.

A Closed Loop Lets You Optimize

This information gives you real time measurement on how well your advertising is performing. Based on this data you can optimize your campaigns in several ways, including:

  • Lowering the bids of keywords that are not converting in a profitable manor
  • Removing keywords that are not converting at all
  • Altering/removing advertisements that bring a lot of traffic (expensive) but don’t convert
  • Find what keywords do convert, and use them to find similar keywords to bid on

Difficult, but Important

Sometimes this is harder than it sounds. For example, developing a value for actions that may not have a direct monetary amount tied to them. This is actually one of the more common problems that companies are faced with. However if you apply this same theory to these actions you can get a better idea of what each action is worth.

For example for every 10 people who sign up to our newsletter we get 1 client. Each client on average provides $500 worth of profit over 5 years. This would mean that the break even point of a newsletter signup would be $50. The lower you can make your cost per conversion beyond this point, the more profit you will make.