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Site “A” is making a profit of $10 per sale and converts 1 out of every 100 visitors. This site can afford to bid only $0.10 per click to just break even.
Site “B” is making a profit of $100 per sale. If they also convert 1 out of 100 visitors, then this site can afford to bid $1.00 per click to break even. (Better yet, they can bid $0.50 per click and earn a 100% return on investment!)
They are making their real money on “back end”. It is not uncommon for savvy marketers to sell a lower ticket item up front, and only break even or sometimes even take a loss, when they know that they can then upsell a good percentage of those customers on a higher ticket item later. Using pay-per-click advertising as a lead generation or list building method for future follow up is actually one of most effective uses for this method of marketing.
They convert more of their traffic into buyers than you do. Even if you are both selling exact same item at exact same price, if your competition converts 5% of their traffic into sales and you only convert 1%… Well, it’s no wonder that they can afford a $5 bid on “blue widget” when you are loosing money bidding $1.25. You can get a pretty good idea who has best converting website in any given market by watching Google Adwords listings in that particular keyword niche for a few weeks. Unless they are one of those “more dollars than brains” marketers, sites that constantly stay near top long term are ones that are generating highest value per visitor.
The only way to compete long term on super expensive keywords is to maintain a continuous focus on improving both conversion rates and average profit per sale.
Want to improve your conversion rates? Eric Graham is the CEO of several successful online companies. Internationally recognized as a top authority on eCommerce & Website Conversion , he's an in-demand speaker & consultant.
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