The Key to a Successful Online Advertising Spend

Having spent millions of dollars on online advertising on behalf of clients, I give a lot of thought to how we can reduce risk and maximize the value of ads. After all, it would be pretty hard to stay in business otherwise!

In this post, I’m going to look at visitor conversion and then touch on what I think is the most important factor in success over time.

Understanding “Conversion”

Online advertising, while being a creative endeavour, is essentially an exercise in mathematics and analysis.

A majority of our readers and clients rely on cost per click (CPC) advertising like Google Adwords where you pay a certain amount of money per visitor sent to your site from your ads.

This cost typically varies from about $.50 per click to about $5 per click.

The cost per click is related closely to the competitiveness of your market and the value of the product you’re selling.

For instance, a local restaurant with an average customer transaction value of about $50 might get clicks close to the $.50 range, while a real estate development with an average transaction value of about $500,000 could end up paying much closer to the $5 figure.

Cost per click? Almost irrelevant?

What’s interesting though, is that this cost per click is ALMOST irrelevant. In truth, the only metric that matters is your “cost per conversion” which is the amount that it costs to actually get a customer (or have a visitor take a specific action like fill out a form).

Looking at the restaurant example, if they are paying a $.50 cost per click and have 1% conversion rate then they need to purchase 100 clicks and spend $50 to get a single new customer.

If they factor in the value of repeat customer visits this may still be worthwhile, but they will most definitely be losing money off the first transaction.

However, if the restaurant does a great job on their web site of converting visitors into customers, the numbers look a whole lot different. If they were able to get a 4% conversion rate then it would only cost them $12.50 per new customer and they would profit from the very first transaction.

Even more importantly, by being good at conversion, they can afford to spend up to $1.00 per click and still have a 50% gross margin on the first transaction!

Engaging With Those Who Don’t Buy Immediately

Whether you’re the restaurant or the real estate developer, only a small percentage of your site visitors are actually ready to take action and make a purchase right this moment.

However, much of online advertising has taken a “direct sales” approach where the goal almost exclusively to make the sale.

How to develop a relationship with a prospective client if you don’t make the sale?

However, smart businesspeople can dramatically extend the value of their ads by understanding that MOST people are not going to buy something right away.

The question, then, becomes how to develop a relationship with your prospective clients in the majority of cases where you don’t make the sale?

After all, if you’ve created good ads then a majority of visitors will have a strong interest in your offering and have high potential to become customers when they are ready to buy, IF you remain “top of mind” in the meantime.

Engagement is key

The answer to this question is that you need them to sign up for something or find a way to more directly advertise to them in the future.

If you can have them sign up for updates, offers or newsletters via email, this is great.

Alternately, liking you on Facebook, connecting on Linkedin or following you on Twitter is another idea.

Additionally, there are even ways which you can advertise to the specific audience of visitors who have visited your site (remarketing).

The challenge, of course, is how to accomplish your long term “engagement” objectives while still converting as many visitors as possible in the short term.

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