Are you having a hard time competing with paid search?  Here’s the break-down on what you should target.

You’ll always hear people in the paid search industry talk about ‘maximizing your ROI’, but they really don’t have the data and tools to execute on this. Bad data = bad decisions. It’s all about knowing the exact outcome and then optimizing your campaign to reach it. I’ll explain what outcome you should be targeting and how to do it.

  • CPC and CPA: Dinosaur Metrics

Google provides excellent tracking on this data, so why not use it right? The problem is that AdWords is setup to help businesses of ALL kinds succeed at PPC marketing, but eCommerce companies like yours have unique needs. As mentioned in my first article, tracking CPA works for companies that offer a single service or product. But when you offers hundreds, even thousands of SKUs, your revenue and profit margins vary greatly between products.

Say, for example, that you sell both Nine West shoes ($80/pair) and Stuart Weitzman shoes ($400/pair).  CPA would assign equal priority to search terms resulting in $80 Nine West sales and terms that generate $400 Stuart Weitzman sales.  Clearly CPA doesn’t provide an accurate portrayal of your PPC campaign’s ROI, making optimization difficult.

Effective optimization is all about precision in hitting the desired outcome. But if you don’t know the outcome in the first place, like many online retailers don’t, then how can you make ‘corrections’? To use an analogy, if you tweak a planes coordinates by just a few tiny degrees, it could arrive thousands of miles from its destination. Constant re-correcting and staying on course is vital to meeting the desired outcome. Now back to selling your products, if you don’t have a precise target outcome then how do you how far you’re missing the mark?

  • CPV: An Advanced Metric

Cost per value (CPV) is designed to target revenue, and emphasizes bidding on keywords that are more likely to result in high-value orders.  Using this metric, you would be able to determine your AdWords spend per dollar of revenue, known as your CPV.  For example, if you were willing to spend 10 cents on the dollar for the above shoe example, you’d be willing to spend $8 for the $80 Nine West sale and $40 for the $400 Stuart Weitzman sale.

Although CPV holds substantial advantage over CPA, it still neglects to account for the relative profit generated by each sale – the amount of money that goes in your pocket.  As a retailer, you live and die by your profit margins, not your revenue.  It only seems reasonable that your PPC campaign is held to the same standard.

  • CPP: The Holy Grail

If the percentage of profit generated by each sale is similar between items on your eCommerce site, CPV may be a sufficient readout for your ROI.  However, if your profit margin varies from item to item, and it likely does, it’s necessary to identify the actual profit generated by each sale.

For example, if you sell computer Model A for $1000 and makes a $400 profit for each sale and also sells Model B for $1000 but generates only $250 per sale, the CPV model would still assign equal priority to each model.  However, a CPP driven campaign would recognize the higher profit margin of Model A, and therefore bid more aggressively.  Because tracking profit exceeds the current functionality of AdWords, we programmed our PPC optimization software to include this data. It requires importing your product data and the Finch platform to make all the data jive.

By identifying the actual profit generated for each keyword, you’re able to bid on keywords that are likely to result in high-profit sales. Because your competitors will be chasing the standard metrics of CPC/CPA, you’ll avoid costly bidding wars and dig where the gold is. You have the advantage of knowing the outcome, so you can bid more aggressively on certain keywords, while scaling back on less profitable ones. Know the outcome, hit the mark, and keep optimizing until you do.

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