in this chapter we'll talk about some best practices for figuring out how much you should be bidding. If you're new to this, it's sometimes overwhelming to determine how much you should be spending per click, what an average cost per click is. As well as how to determine whether or not that's going to be right for your business or your clients business. So here's a scenario and I'll give you some variations on this scenario. Imagine if we have a 2% conversion rate on our website. So that's something we already know. It might be something that you know from historical information. It might also be perhaps the goal that you're trying to achieve on your website. So you need to know what a conversion, what conversion rate you are aiming for for your specific campaign. And you also need to know how much each customer or subscriber or new client is worth to the business. So let's say for this one example we're going to designate $ value to this customer and now we've got to determine what ou...
r maximum bid should be. Here is a simple formula that you can use. You can use the expected value of that acquisition multiply it by the conversion rate of the website and then multiply it by your desired cost margin. And that's going to give you your maximum bid per click. So let's say you wanted to get at least two times the return on ad spend, right double the return on your investment or $2 for every dollar that you're spending meaning that you're willing to pay 50% of the revenue that you'd be getting back? Therefore your cost margin is 50%. So your expected value of acquisition is $200. Your conversion rate as mentioned is 2% your desired cost margin is 20.5 and therefore if you were to do that math $200 times 2% times 20. your maximum CPC, your maximum cost per click is $ easy enough. Right? But he's a slightly different scenario. So in some cases you might decide that as long as your return is a little bit more than what you're spending, it will be worth it meaning you're willing to invest or your client is willing to invest as long as you're making some money back. You don't necessarily have to make twice as much back. You just want to make a little bit more back. So in this case let's say we decide we're okay making about 10% back. Right. As long as we're not losing money, you're breaking even make a little bit of a profit will be fine. So expected value might still be 200% of the acquisition. The conversion rate is still 2% and we've said we're willing to spend up to 90% or were willing to forego 90% of what we're spending in advertising. So we're making only about 10% back are maximum cost per click would be $3.60 which increases that significantly for the campaign, let's say other times we've decided we can't decrease our return. But what can we do to still improve our conversion rate to be able to make more revenue off of this campaign. And so some ways that you might want to optimize your conversion rate is perhaps looking at your landing pages. So when people are clicking through and they're actually arriving on your website, what they're seeing, we'll talk about that in a later chapter and some best practices for that. You might also decide to perhaps put a more compelling offer out there so that people engage with the ad more frequently and also convert more frequently. So for this example we would maybe estimate a higher conversion rate. So the expected value of the acquisition is still $200. We're going to double the conversion rate. We're going to be very ambitious and say for this campaign we're going to do awesome and we're going to make an amazing landing page. We're going to create a really compelling offer and the conversion rate is going to be 4%. We're going to keep our desired R. O. I. Of doubling our money on this campaign. So it's 00.5. Now our maximum cost per click can be up to $4. So because we've doubled our conversion rate. We've also doubled our budget for the campaign. We went from $2 to $4 when from a 2% conversion rate to 4% conversion rate. And then last. Maybe. Another thing that you do is you look at how you're actually valuing your customer meaning you might acquire a customer at a certain price and sometimes you might actually have to pay more to get that person in the door right? But what you do is you look at how long that customer is typically engaging with your brand or what other products and services you might be able to sell to that customer to make that acquisition more valuable meaning after they engage with you. Can you up sell them on a product or service or can you cross sell them to maybe a different product or service Or you might pay a lot up front but it typically your customers are lifetime loyalists so they're going to be purchasing your product over and over over the course of several months or years. And so with a better retention strategy or an up sell strategy, you can now take a customer that typically might only be worth $200 at the outset and actually add on additional later purchases that you can put into this equation. So for this one scenario, perhaps we value the customer at $300 instead of just $200 and everything else stays the same. So our conversion rate would still say the same or desired return would still say the same but with a $300 value of that customer and the same conversion rate in the same cost margin, We can now spend up to $3 per bid, which also helps us to increase our budget accordingly. So hopefully that was helpful walkthrough of not just the formula that you can use, but different ways that you can look at the pieces of the formula and the metrics involved to be able to make adjustments to either your landing page for higher conversion rates, your risk involvement for a different desired cost margin, as well as a lifetime value or a longer term value of your customer based on some of your acquisition methodologies.