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Before you Advertise on Google Adwords

Feb 29, 2008
Before you start advertising on Google Adwords, you need to know how much to spend. Experience suggests that if you have a good ad, you can aim to get two sales per hundred clicks on Adwords. I said 'aim', which does not imply you will get this many sales, but this is the place to start.

We need to calculate what that means in terms of the amount you should pay per click. Consider the case where you are paying $0.50 a click, which is not high. If you get two buyers for each 100 clicks, you are spending $25.00 for each sale.

Obviously, you need to be getting more than $25.00 per sale when you advertise on Google Adwords to make this work - in fact you want a ratio of at least 2:1 which means you need to make a little over $50.00 per sale if you are spending $25.00 per 100 clicks.

Include your overhead costs

A word of caution here:the cost of the ad is not all you have to pay to run your affiliate business. People point out that you don't need staff or offices, which is true, but as a successful affiliate you will need a computer, a website, an autoresponder service, and a few other things, such as training or some other advice, which will cost in the region of $150-200 a month altogether. These are like the overheads in an ordinary business.

Let's say you are advertising three products, and making $1,000 a month, with Adwords costs of $500 each month. Well, you need to add in $100-200 to your costs, which means your net profit is not $500 but $400 or even $300. Now, it is possible you might keep those costs down to $50, and make $450, but that is below the 2:1 ratio we want, so we really want a slightly higher return for our ads on Google Adwords.

How much you can afford to spend

As a rule of thumb, when you start for you want to pay no more than $0.25 per click for a $25 net commission. This ratio shows what you should aim for when you start. It shows that you can spend $0.10 for each $10 of commission, and so on. So, for a $100 commission, which would be difficult to sell to Adwords clickers, you could spend $1.00 per click in theory.

Now, I am not saying you will make money at this level. I am saying that there is a good chance you will, and these are ballpark figures for starting out. You may find after 100 clicks that you are not getting 2 sales. Maybe you are getting zero sales, but however many it is you need to react accordingly. Either by reducing your prices, which will mean going down the ranking for Ads, but that may not be a bad thing. You will get fewer impulsive and wasted clicks further down the list. Or if all is going well, increase your advertising.

If you start at this level of 10 cents per $10 of net commission, track your ads, and check your daily spend regularly, you will be able to test various markets without losing your shirt when you advertise on Google Adwords.
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