Absolutely, it depends, and no it’s not. Make sure you are getting a good value for your online advertising and not throwing your money away. Here are some things to consider when evaluating the investment.
How do ads work?
Pay per click (PPC) and Cost per 1000 Impressions (CPM) are two of the most common payment methods used in online advertising. The amount you pay is determined by an automated auction process and depends on the amount you bid, how much competition there is, and how relevant your ad and landing page are.
Targeting is most important
You want your ad to appear to the right people at the right time. Location and keywords are two of the most important targeting methods. If I own a hair salon in Collegeville, it doesn’t do me much good to have my ad shown to people in Madison, Wisconsin.
Keywords are the words that people use when searching or that describe a relevant page where your ad will be shown. The most common keywords are the most competitive and the most expensive. Long-tail keywords can provide better results at a lower cost. For example, “shoes” is a very generic head keyword. It’s not clear at all the traffic sent your way will be related to what you are offering if you are a retail shoe store. A better choice would be “Fila women’s running shoes.” After all, you don’t really want to pay for a click from someone searching for “what are casino shoes?” which would match “shoes” but the searcher is looking for information on a device for holding playing cards.
If you don’t have the right keywords and location targeting you will pay for a lot of irrelevant clicks and blow through your budget without much to show for it.
Use Landing Pages
Do not direct your ads to the home page of your website. Your home page is usually more general information and will not match the specific message of your ad. (Your ads should be specific!)
If I have to click three more times to get to the women’s running shoe page, I am a lot less likely to stick around your site. Every link and piece of information on your landing page that distracts from the goal of your ad is likely to lower your conversion rate.
Impressions and clicks are not very important if they don’t translate into additional business. Every landing page should have a call to action – the action do you want the person to take. This could be placing an order, submitting a quote, signing up for your email list, or registering for an event. You want to track how many conversions you are getting and also make sure that you track the conversion back to the ad versus other sources of traffic to your website. Only then can you determine if you are getting a good return.
Your cost per acquisition is the total cost of your campaign divided by the number of conversions you have. If the lifetime value of your new customer is well over your cost per acquisition, this advertising channel is a good return for you.
If it is not, can you further optimize your campaign to lower your cost per acquisition? For example, make sure your keywords are appropriate and not pulling in unrelated impressions. Another way to optimize is to split-test your ads and your landing pages to see which perform better. Replace the lower-performing ones to boost your click-through and conversion rates.
If the lifetime value of a customer is below the cost of acquisition, there are better places to spend your advertising money.
See the example in the infographic below:
Note: Numbers in this example are purely for illustration. Actual Cost per Click, Click-Through Rates and Conversion Rates can vary widely depending on industry, competition, local area and other factors.
It’s not once and done
If you are going to run a paid advertising campaign, results are not instantaneous. You will have to give it some time and optimize the campaign before you can tell if it is going to be worth it.
So, should you advertise?
Paid advertising can be a strong part of your marketing mix, if you take the time to set goals, target your audience, and track your results.
If you haven’t optimized your website for your target customer, it is best to start there with your investment as that will benefit both paid and search traffic.
Similarly, if you aren’t connecting with your existing customers and prospects via email marketing, you should do that first. The returns will be higher for your efforts there, and it will help you maintain contact with any leads you do acquire through paid advertising.
Online advertising glossary
PPC (pay-per-click) – Advertisers pay when the ad is clicked.
CPM (cost per 1000 impressions) – Advertisers pay for 1,000 impressions of an ad. An impression is counted each time an advertisement is shown.
CPA (cost per acquisition) – The cost to acquire a new customer or lead. It is calculated by dividing the cost spent on advertising by the number of conversions on the campaign. A conversion happens when the desired action for the campaign is taken (e.g. form filled out, order placed, or event registered).
Landing Page – A single targeted web page that appears in response to clicking on an online advertisement.
CTR (click through rate) – The number of times an ad was clicked on as a percentage of the number of time the ad was shown.
CTA (call to action) – A banner, button, or some type of graphic or text on a website meant to prompt a user to click it and continue down a conversion funnel.
Keywords – Words or phrases that are used to search for content.
Long-tail keywords – Longer, more specific keywords that are less common individually, but add up to account for the majority of search-driven traffic. The trend is that more detailed keywords and phrases are now typed into the search box. For example, someone types “Nissan car dealers near Royersford,” instead of “car dealer.”