Suppose you’re currently running Google Ads focusing on pay-per-click. In that case, it’s essential to understand specific metrics to maximize your return on investment rather than simply filling Google’s pockets. Not knowing these metrics could imply you must fully utilize the potential of Search Engine Marketing (SEM) Services. This article will guide you through these metrics and provide an in-depth understanding of how they impact your Pay Per Click campaigns.
Average Order Value (AOV):
This is the average amount your customers spend when they buy from you. To calculate this, divide the total revenue of a specific period by the number of orders made in that period. For instance, if the AOV is $75, each time someone clicks on your ad and makes a purchase, they spend $75.
Customer Lifetime Value (CLTV):
An individual’s projected revenue during their lifetime. It’s not just about the initial purchase; it’s about retaining the customer and having them purchase repeatedly. For instance, if a customer buys from you five times in their life, with an average order of $75, the CLTV would be $375.
Cost of Goods Sold (COGS):
When using Pay Per Click on Google Ads, you must factor in how much the product or service costs. For an e-commerce business with an AOV of $75, the COGS might be $25.
Transaction Fees:
These might seem minimal, but they can add up. On a $75 order, transaction fees might be around $2.
Shipping Costs:
Depending on your business model, you might have to factor in shipping costs, which can vary. For a $75 order, let’s assume it’s $4.
Taxes and Duties:
These can take a significant chunk out of your revenue. For instance, a 20% tax on a $75 order is $15.
Refund Rate:
Not every transaction will go smoothly. If 5% of your customers request a refund on a $75 order, you’ll lose $3.75 on those transactions.
Understanding all these metrics, one can derive how much they can afford to pay per click and still break even or make a profit. From our example, after deducting all the costs from the $75 AOV, we get a net of $25.25. One can spend this amount on Pay-per-click advertising for that product and break even.
However, the best Search Engine Marketing (SEM) Services advise looking beyond breaking even. By focusing on CLTV, one can strategize their Google Ads to acquire customers at break-even or slight loss on the first purchase, knowing that the customer will bring in more profit over their lifetime.
In conclusion, knowledge is powerful when navigating the Google Ads and Pay Per Click world. By understanding and regularly recalculating these metrics, companies can ensure they get the most out of their Search Engine Marketing (SEM) Services investment. Knowing these metrics isn’t just an oversight; it’s potentially leaving money on the table. Need help considering using a digital marketing agency.