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How to Turn a Profit on Unprofitable Keywords in Your Pay per Click Accounts

Aug 18, 2008
Sometimes there is just no way to turn a profit from the initial sales generated by your keywords. Some industries are just too expensive, and sometimes the economics just don't work out. Here is an example: let's say you sell a product that earns you a profit of $20; clicks cost $.50; and your conversion rate is 2%. Dividing $.50 by .02 tells us that our cost per conversion is $25. A $20 profit minus a $25 cost of sale leaves us with a $5 loss on every sale.

Certainly you would keep working on your account to try and decrease your cost of conversion (by decreasing the cost of your traffic or increasing your conversion rate), but there just may come a point where you have to admit that there is just no way to make the economics work in your favor.

The key to turning unprofitable traffic into profitable traffic is in the sales funnel. You need to provide something very valuable that your prospective customers can have for free, even if they don't buy your product...if they give you their email address. It is also very happy to have some kind of email verification requirement before they are allowed to have the product.

Even if you are losing money on sales, if you are building a list, you are building long-term or future value. Let's return to the numbers above again. Now let's assume that we have something of value on our web site that captures the email addresses of 10% of the people who visit the site. Of those 10%, let's say 25% of those eventually become customers of our product that earns us $20. Our overall conversion rate is now 4.45%, which is calculated as follows:

2% Initial Conversion Rate + ((1 - 2%) X 10% X 25%) = .02 + .0245 = .0445 = 4.45%

If you wanted to get really technical with the numbers, you would discount future sales by some appropriate discount rate, based on the average length of time it takes to get future sales. However, such a calculation would only make a small difference on our final numbers here (and would be a real pain to calculate), so it is not necessary.

Our $20 profit product now actually earns us a profit even after paying for our ads. Dividing our $.50 average click cost by .0445 gives us a cost per conversion of $11.24, resulting in a profit of $8.76.

This very simplistic example implies a site that only sells a single product. However, the concept is relevant to every type of business. It is also a good lesson for off-line marketing initiatives. For example, if you have a physical retail store, it could be very effective to collect email addresses of visitors to the store even if they don't buy anything. Once a person is on your email list, you can email him about special offers, sales, discounts, or whatever. Rather than paying for mass marketing, you now have a direct one-to-one communication channel with people who already know who you are.

So the core lesson is this: pay per click marketing can be much more profitable if you are careful to collect email addresses even from people who do not buy. Shift your focus away from the mindset that your paid search account needs to be immediately profitable, and think instead of building a long-term list of prospective customers who may buy from you weeks, months, or years in the future.
About the Author
Jerry Work is president of Work Media, LLC, http://workmedia.net, a search engine marketing firm based in Nashville, and author of Scientific Search Engine Marketing: Maximizing Your Pay per Click Return on Investment.
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