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PPC automation can be a great driving force behind any marketing campaign, provided you know how to use it properly. Several factors go into how well your automated bidding algorithms work and mismanagement can mean a completely wasted ad budget and a useless PPC ad campaign.
The first thing to think about is the fact that automated bidding algorithms are essentially learning machines. This means that you’re trusting that machine to do work for you that you will otherwise have to do yourself. By now you’re probably going “gee I already know that, why are you telling me this?”
We say this because oftentimes the automated machine is not allowed to function as it normally should to make the PPC ad campaign as effective as it could be. That’s why we’re going to go over some things that every marketer should know about Automated Bid Strategies and how to make them work properly for your PPC ad campaigns.
Yes, that’s right, budget constraints can negatively affect your automated bidding strategies Or algorithm. The way the program grows is by learning behavior and adjusting to match that behavior to get the best results possible based on ad data.
However, if your budget is such that you can only spend ad dollars on auctions that will result in clicks and your return needs to be exceptionally high, this will result in your automated bidding strategy algorithm only Automated bidding strategies/bid strategies on auctions very sparingly and may result in diminished traffic and diminished returns.
Instead, your automated bidding targets should be set based on realistic expectations of return on ad spend based on actual cost per ad data that you’ve used recently.
Relevant data helps the algorithm learn what it needs to do in a particular situation as opposed to setting target guidelines with no predefined data.
The algorithm must learn the patterns of data over time. Setting unrealistic goals on little to no data will only result in wasted spending or ad spend.
It’s important to remember that you are teaching the algorithm how to target the best auctions for display ad space on your behalf. To do this you should follow a few certain steps to get the best results.
Target strategies focus on hitting a certain ROAS or CPA and not on the bulk-buying of ad space. Because of this, how you manage these values in telling the algorithm what to do is crucial to having any success what so ever in your ad campaign
If this is your first time using an automated bidding strategy algorithm and you’re trying to target auctions accurately rather than forcefully, you should start by feeding the algorithm your CPA and ROAS data from about the last month or so.
It takes the algorithm a couple of weeks to get up to speed so you’ll want to avoid making any changes until the program has ended its initial learning phase.
When attempting to make adjustments to your ad targets, you should work in small increments. For instance, if your ROAS is 10x, don’t wait two weeks and immediately try to jump to a 15 or 20x number, move slowly from 10 to 11, wait a few weeks and then move again. This gives the algorithm time to learn and adjust.
Otherwise, you end up in the same situation as we stated before, the algorithm will likely seldom Automated bidding and result in diminished returns.
Lastly, allow your algorithm to observe other sets of data by setting it to observe other audiences. As we said, you’re teaching the algorithm, so the more data it has access to, the better it will perform.
For ad campaigns that run on a stringent budget, you can set your automated smart bidding algorithm to maximize the number of maximize conversions/maximize conversion value on a particular ad. While these strategies are indeed effective if your ad campaign is strapped for cash, they have some limitations that make them ineffective for certain types of ad campaigns.
For one, setting your automated smart bidding to maximize conversion is like telling it to charge into battle without considering anything but beating the enemy. What this means is that the algorithm will forego any other data other than maximize conversions, such as demographic data, customer preferences, or even automated bidding strategies adjustments.
It will also continue to bid and buy ad space so long as the budget allows until it hits the pre-defined limit.
This type of strategy also doesn’t care about cost per click targets. If you have an ad campaign with these targets set, this strategy will be wholly ineffective.
Just like with target-based strategies, maximize strategies require time to learn the strategies you want them to perform. Automated smart bidding algorithms aren’t designed to make quick and sudden changes and if you try to do so, you’ll end up with a non-functional algorithm that is constantly readjusting.
This rule applies doubly to marketers who are constantly seeking concrete proof of success and every time they don’t achieve it they want to switch and try something new. You’re more likely to achieve success with your algorithm if you allow it the time and space to grow properly. You may even find that a given strategy that you thought was underperforming, may do better than as time goes on.
Success is not guaranteed, but allowing the algorithm to work as it is meant to be better than constantly changing strategies and hoping something sticks.
Automated smart bidding algorithms are great for taking a lot of the procedure out of Smart bidding Strategies for ad space and can save you a lot of time and effort in your marketing strategy that would likely be better spent elsewhere.
The problem is, many marketers want instant gratification and maximum results. If you can manage to follow through with the advice we’ve outlined here though, you’ll find that an automated smart bidding algorithm is much more efficient and successful than you ever though.
In addition, many of today’s automated algorithms are strategically built so the house always wins.
Instead of immediately accepted all bid adjustments suggestions, it may be worthwhile to take the time and do it manually.
Remember, Google Ads are strategically designed to make Google money (and now they are using AI for PPC), not necessarily to always perform the best in every situation for every business.
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Remarking and retargeting are useful components of Google Ads and a crucial part of any PPC marketing campaign, that is if you understand and use it correctly. Before we break down how best to use PPC remarketing campaigns, banner ads to increase the return rates of online advertising customers, we’ll explain exactly what it is, how it works, and ways to use it.
Marketers may know what remarketing campaigns is, but even experts may find they don’t know everything about it. This guide will help to plug those gaps and become the ultimate resource for people using PPC remarketing Campaigns.
Remarketing Campaigns is essentially targeting ads to existing customers based on customer data. The types and variety of ads will differ based on customer preferences, market data, and a number of other factors.
This type of marketing is highly effective at getting existing shoppers to return to a site once they have already visited. It works by showing them things they may be interested in. This can be sales, new products, add-ons to existing products and services, new content on the site, and other types of marketing material or promotions.
The purpose is to increase the rate of repeat customer traffic through highly specific targeted ads marketing.
The one thing to note about remarketing campaigns or strategies is that they rely on existing customer data to perform well. Remarketing compaigns is not a customer acquisition strategy so the distinction should be made. You can’t collect customer preference data on people who aren’t your customers yet right?
So basically, before you even create remarketing campaigns you need customers who are already interested in your site (which means past visitors), and who have at least visited your site before or past visitors). That’s step one, remember it.
The reason customer data is needed for remarketing Campaign(besides the fact that it targets customers’ interests) is that the primary way that remarketing data is collected is through everyone’s favorite internet snack food, cookies. In this case, we’re talking about specific tracking cookies that are stored on users’ browsers and then used to follow them around the web and show them remarketing ads, ok maybe it’s not that specific but you get a general idea.
This can be done with the click of a button in Google Ads, it’s a button labeled remarketing. It allows you to set the tracking cookie requirements based on several different factors, duration of stay, pages visited, etc.
Every time a customer visits your site, cookies are collected which store a variety of user data that is relevant to your marketing work. Part of that data allows you to target customers with ads so that they will be more likely to visit your site and shop again. This is essentially why it’s called PPC remarketing, you’re performing targeted marketing/targeted ads marketing to existing customers or interested parties, hence you’re remarketing to them.
This doesn’t always mean that you’re targeting people you’ve already converted, but people who may have visited your site and not yet converted. In a sense, you’re marketing to existing customers and potential customers who’ve shown interest enough to visit but haven’t actually made that purchase yet. If you think of it as shopping, they’ve clicked add to cart, but haven’t yet pressed that checkout button. You’re giving them that last little push to come back and checkout with their cart full of goodies (or whatever else it is you’re trying to get them to do).
Now that you know a bit about remarketing Campaign and how the data is gathered as well as what it’s used for, you can begin to formulate a remarketing Campaign strategy to get those customers and potential customers returning and converting, hopefully again and again. To facilitate easier understand of the strategizing process, we’ll break down the process into pieces that’ll be more digestible, even for the marketing novice (we realize some of you reading this may already have a great deal of marketing space, but we like to cover our bases, this is the ultimate guide after all).
Also called segmenting, this basically means dividing your potential remarketing audience into different groups or ad-target types. This should be fairly straightforward and based on the data acquired.
Segmenting your audience ensures you’re not targeting the wrong type of ads to the wrong people. You want your remarketing ad usage to be as highly targeted as possible with remarketing Campaign and dividing up your audience helps to facilitate that.
There are numerous types of ads and deciding which type of ads to run for your target audience will be based on the data you have available and what works best for that particular audience.
There are enough ad types to create an entirely separate section, so we’ll break down the ad types and their uses elsewhere. One thing to note about picking your ad types is that Google allows you to create lists based on your ad type preferences for the audience.
Additionally, you can filter data and sort targets based on many factors, this helps you to decide what types of ads may work best. After all, different types of people have different search habits, such as how prone they are to search on mobile, how likely they are to watch video ads, and other things.
As with anything in marketing, before you know what really works, you’ll have to test it first. In the case of PPC retargeting ads, you may have lots of customer data, but that doesn’t mean you can always account for individual taste.
That’s why it’s important to test your marketing efforts and allow the data to coalesce until you’re sure of what is and isn’t working. Like any other marketing strategy, pulling the plug too early on a campaign means wasted efforts, but by the same token, letting a bad campaign run too long is wasted money and effort as well.
Test your methods and figure out what works, what kinda works, and what doesn’t work at all.
Like every other ad you’ll ever run, search engine optimization is key. Once you have a good idea of what works, you can begin to optimize for search engines. This is pretty much the same process as regular ads, just more specified to your target audience.
This includes optimizing for conversions too. Sale ads, special features and other types of ads that show customers what they’re missing out on is a great example of ways to optimize conversion when remarketing.
Before we talk any more about Remarketing Campaigns ad types and getting your specific strategy together, let’s talk about narrowing down and filtering your audience so that you know you’re targeting the right people. No matter the strategy, if you’re targeting the wrong audience, it’s likely wasted effort.
Imagine folks wanting to see a comedy show arriving at a talk on timeshares, you’d instantly lose your audience and nobody would buy a timeshare.
You can honestly target an audience in any number of ways. You can eliminate targets on the same basis as well. But essentially you’ll want to break your groups of targets down into manageable groups.
Beyond the basic demographic targeting options, which serve to narrow down audience gender, age-range, and other factors, there are a number of other things to look out for when trying to decide who to target.
For instance, one strategy is to target customers who hover on particular product pages. You could assume they are looking for a particular style of product or looking to see which one is cheapest or has the fastest delivery, factors such as that.
Knowing these possibilities you can create an audience category and then select ads that will target their interest.
As we said earlier, there is an endless number of ways to target a potential audience. Think about what you’re trying to do, what customers you’re trying to increase, and target according to those metrics.
It’s just as important who you don’t target in some sense. If you already have a segment of your market that regular ads are working for, then you don’t want to waste time and money remarketing to them.
One last tip on audience targeting is to narrow things down as much as possible. Target particular customers for particular URLs and make that a separate list. Say you want an audience to target sneakers, you can select the audience and target the ads to get them to shop specifically on your sneaker product pages.
In many cases, the more precise the targeting, the better.
Once you have all of your data, or before if you prefer, all of the setup to create lists of audiences and to target them for tracking and data collection can be done from the admin tab of your Google Ads account.
From the admin tab, you can set audience definitions based on a wide array of factors. This lets you customize your target audience to a great degree and gives you control over data tracking.
You can then create lists of those audiences and name them whatever you choose or even sub-divide them even more so that you can keep track of them even better. You’ll need to agree to some terms and conditions and be an active Google Ads Remarketing user, but once the “paperwork” is complete you’ll have access to create lists and also to determine how long you’d like your tracking cookies to stay stored on a user’s computer. This helps you set the targets for short-term or long-term campaigns or for whatever duration you’d like.
You can even set the frequency at which any given user will be shown your ads. It’s a good idea to set reasonable limits on these as too many ads can turn users off entirely. Remember, the idea is to nudge them into conversion, not scream at them until they convert.
There are a number of remarketing campaigns options that Google Ads allows you to choose from. Rather than just list them for you, we’ll discuss the main ones and ways they can be used to target an audience.
You can think of this as baseline marketing. This feature shows ads to browsers as they search the web or use apps on Google display network/display ad network. These are the conventional ad type and are best targeted towards the “browsing” type of users. Those people that go from page to page and typically like to look at lots of different things.
This type of remarketing shows ads to users of products that they’ve looked at before. This is good for those users that “shop” a lot (perhaps on an ecommerce site) but leave the cart full without checking out with it. This works on window shoppers too, the ones that don’t add to the cart but like to view product pages.
This is targeted remarketing optimized for your mobile website visitors or mobile app. As we said at the beginning, all that data allows you to know what users are browsing on and how often. If you know that your audience is frequent mobile browsers, then this option will help you target them.
This is just what it sounds like. It targets audiences and shows them search ads as they search Google. This display ads in their search results. This type of marketing works best on those users that just need a subtle reminder of what you sell or do. Those users that are on the doorstep of converting and just need a nudge are good for these ads.
Just as it sounds, this shows video ads to users as part of the Google display ad/ads network or for users of Youtube. This is great if you know that users are constantly watching videos. A short impactful ad can grab attention and make people want to traffic your site again and hopefully convert.
The most specific of the marketing types, if you correspond with customers via email, you can upload these to your Google Ads account and it will serve up ads as long as customers are signed into Google services.
Now that you know all about the ad types and how to use them, the last thing to worry about is SEO. Just like any other Digital marketing campaign, you’ll want to optimize all the elements of these ads to maximize rank and conversion chance.
We’ll break it down into sections so that you understand the different optimization strategies to make your ad campaigns work best.
This sounds simple, but you want to make sure your ads will work to drive traffic and convert. This can be a long process as you test and retest to ensure accurate results but this is key to the whole campaign.
As we talked about, you can adjust your audience settings and frequency of ads on the fly. You should be routinely checking and testing these to ensure your target market is correct and that you have the ad density correct.
The wrong audience target can mean wasted ads. Too much ad saturation for users can make users less prone to revisit instead of more prone. Finding the balance is tricky but worth putting the time into to get it right.
This should be self-explanatory but you’re looking at three things in particular. ROI, CTR, and IS. That’s the return on investment, how much money you’re getting for every ad dollar spent, click-through rate, how many times customers follow through and click to your site, and impression share, basically how much recognition your ads are getting. One quick note on impression share, if this is too high, you’re likely upsetting some customers.
Just as tricky as with standard Digital marketing campaigns, making sure the page is relevant, the text is useful and the page is able to tell potential customers what they want to know about the product or service is key.
You should be used to optimizing your landing pages for keywords and user experience. The process here is the same, make sure the users are getting what they want out of the landing page and continuing on to convert.
There’s no magic formula for remarketing but the general rule of the thumb is to target customers who have the potential to revisit and convert. You’re not mass marketing to everybody who’s ever visited your site. Some of them can’t be converted and others will return on their own.
That’s why we said to make your audiences as specific as possible. This lets you target just the niches of customers that are useful to you and eliminates a lot of the non-contenders.
Our other tip is to stay focused on whatever it is you do. You might call it brand focus. You want to draw in people who’ve visited your site. They likely already know a bit about you, so stay on brand and on point. In this way remarketing and PPC can help to do nothing more than improve your brand online.
Lastly, accept what you can and let go of what you can’t. You won’t win every target audience, not everyone you remarket to will convert and some campaigns may have more success than others. Particularly during sales or the holidays, you may see more from your remarketing than during other periods. Accept it and limit your risk or change your strategy so that you don’t waste ad dollars. Once you find your own rhythm, you’ll likely be winning more conversions and spending less.
There you have it, our ultimate guide to PPC remarketing. Hopefully, it’s taught you everything you ever needed to know about run remarketing campaigns’ target selection and everything in between to make your campaign a success & up on Digital marketing.
Ok, so this is one of those questions where instead of giving you a straight yes or no answer, we’re going to go with, it’s complicated.
Whether or not you use automated bidding with your Google Ads is going to be determined by how much or little you do with your automated bidding program.
If you treat your automated bidding programs like some sort of set and forget cooking appliance, then you probably should avoid ever using it again with your Google Ads as it is likely doing you more harm than good. Whether or not you buy into a lot of lies and half-truths that are told about google’s automated bidding Strategies will determine your success with automated bidding Strategies and whether or not you should use them.
You may find that the truth of automated bidding Strategies is a bit more than you bargained for and decide not to use them. Then again, you may find that if you use them right, the benefit outweighs the work you have to put in.
If this all sounds confusing, don’t worry we’ll break it down into a digestible format so that you can make the right decision for you.
Before we dispel some of the lies and assumptions surrounding automated bidding strategies, we’ll break down how it works and explain some of the functions in case you’ve never used it and want a bit of a guide on how it works.
If you’re wondering whether you should use it with Google Ads or not, you may not be aware of what exactly automated bidding is and how it works.
Automated bidding is essentially a type of artificial intelligence program that uses user-defined parameters to bid on ad space within Google Ad auctions.
There are a large variety of ways that these programs can bid and the amount spent, frequency of bids, and many other factors can be customized and set so that it does all your ad bidding for you. Automation is a great way to save time and get your Google ads out there so that people will see them.
There are a few different strategies that you can set as well to tell the program how and when to bid on ad space that is up for auction. Depending on the parameters set, the A.I. may or may not bid if the auction does not meet the criteria.
This type of selective or smart bidding has its own set of benefits and drawbacks.
The automated bidding program works by the user setting parameters for it to work in, and by being fed data on relevant ad space, funding requirements, performance data, and other metrics. By using all of these metrics, the program picks what Google ads to bid on, how much to bid for ads and bids for Google ads based on everything it has accumulated until it runs out of applicable funds.
The most obvious benefit of this is the hands-off automation that it provides. It requires much less time to program the A.I. than it does to manually bid on ad space. The main drawback is that you have much less control over the situation.
Another benefit that isn’t as apparent is that if you’re a marketer and you’re looking to run multiple ad campaigns, automated bidding automated bidding strategies allows you to manage multiple campaigns without keeping tabs on each and every auction that comes up.
As you can see from what we’ve covered, automated bidding strategies does indeed have its uses and downsides. Now that you have an understanding of how they work, you can understand why the answer to the question of whether you should use them or not is quite complicated.
Besides PPC automation, marketers have begun to use automated bidding strategies to become competitive as well as to win more auctions in general. In a lot of cases, bidding can be difficult as the more competitive a space is, the more fierce the bidding.
Bidding too low or bidding on poorly chosen ad space can result in poor advertising returns. That is a large part of the reason why marketers and advertisers prefer an automated bidding program as they can be programmed to win inform future bids rather than bidding based on speculation or emotion.
The obvious downside to this is that they do not hold any regard for certain factors.
Certain bid strategies prioritize winning prime ad space over other factors such as customer preferences, demographic data, ROI, and other metrics. This can be useful in some cases, but also a detriment in others.
Other strategies prioritize ROI and conversion rate over winning as many bids as possible. This allows the automated program to carefully select the bids it places to try and maximize the potential return on investment or maximize the conversion rate.
While this is a great idea, in theory, it too has its drawbacks, particularly if it fails to win enough ad space for the campaign to be seen or craft it in a way that it doesn’t convert. Balancing these factors is part of the marketer’s job unless they are going for a certain approach.
From a practical standpoint, the ability to tell your automated bidding program just what to focus on can be seen as a major benefit.
As we will discuss later, these base principles aren’t all there is to it, unfortunately.
Now that we’ve covered much of the basics about automated bidding programs and how and why they’re used, we’re going to discuss some of the facts about automated bidding strategies that will help you determine whether or not to use them in your Google Ads.
When we say this, what we mean is, automated bidding can be set for a number of factors and can certainly bid on and win Google ads that will get you plenty of clicks, what they don’t guarantee is that those clicks will lead to sales.
Many marketers are under the misconception that once you put an automated bidding strategy in place, all you have to do is sit back and watch the sales roll in. This is not only untrue, but it is also highly ill-advised. Not all, but some marketers assume that as long as you tell the program what you want and give it a budget, and you don’t have to review or watch a thing, it does all the work for you.
What you should be doing is setting reasonable parameters for bids and then checking your metrics to see how the Google ads it buys are performing. Like with the example of clicks, you can be ad spend money hand over fist for ad space and get lots of clicks, but no maximize conversion. You can liken this to running a store with only window shoppers while you still pay employees, rent, and utilities. In these cases, you are paying for valuable ad space that is not driving business the way it should.
Not only should you review your ad purchases regularly, it actually benefits the A.I. of these programs. They thrive and learn off of the input. If you feed them data that something isn’t working, they learn from that over time and adjust their bidding algorithm to try and do better. This doesn’t mean it’ll always fix the problem though so you still have to watch your bids, but it will generally improve over time.
If worse comes to worst, change your strategy and keep trying. Knowledge is power…we think.
Many marketers are under the false assumption that automated bidding programs are a sort of plug-and-go situation where you feed the program the inputs you want and it will go to work immediately to win you great bids and premium ad space.
This is one of those times where the belief could not be further from the truth. The actual truth is that automated bidding programs take weeks to get up to speed. These are learning machines after all. They have an initial learning phase that takes into account all of the information they have been fed in order to get calibrated for automated bidding strategy on auctions.
The standard amount of time is roughly 2 weeks but can run longer depending on the amount of information, the strategy, and the budget. The good news about this factor is, you can essentially front-load as much information that is relevant to your ad campaign as possible to supercharge the learning of your program so that once the initial learning phase is complete, it will have a higher success rate.
This includes feeding it all your campaign data, strategy, budget, any passive audience viewing information as well as any relevant historical ad campaign data. All of this will help it learn. Many marketers do not realize that so much information can be put into the program and that it will improve performance.
A well-fed A.I. is always a good thing and with the right data, you can see excellent results. Just don’t expect it to happen overnight.
This is something that even popular brands and expert marketers get wrong all the time and have no idea why until they study up on it. Most people think that “smart bidding” is the same as automated bidding. This is one of those yes, but no, statements.
So, let us break it down for you. There are many different types of automated bidding strategy. Out of those many types, smart bidding strategies is one of them. The reason for the distinction is that marketers incorrectly assume that all automated bidding is smart bidding strategies. That is wrong. Smart bidding is considered a sub-group within all of the automated bidding types. Once you know this difference, you can use smart bidding more appropriately.
Smart bidding focuses on fixed conversion-related bidding tasks such as click targets, ROAS targets, maximize conversion rates, and cost per click. Using these you can develop specific bid strategies and very targeted bidding that can win you ad auctions with specific results.
This type of bidding has to be used with caution though as these types of bid strategies will usually tell the program to ignore other data such as cost per bid, user demographics, and other customer-oriented data.
If used properly and strategically, there are a lot of benefits and loads of profit to be made, just don’t go assuming that smart bidding is all there is or that automated bidding strategy is all smart bidding.
Just because you set an advertising budget and programmed your automated bidder doesn’t mean that everything goes as planned and you no longer have to account for individual bids.
Without the right parameters, your artificially intelligent friend can bid on very expensive ad space and quickly eat through your ad budget without you even noticing it. Within a few individual bids, you can go from a full balance to a zero balance for your ad budget.
If you see that your cost per click on some Google ads is too high, you can retarget and get better pricing or if you think you need the better ad space, increase your budget to cover the better ads. In either case, you should be sure to watch your ad spend or you’ll soon be out of budget and short of customers.
There’s plenty of customization that can be done with automated bidding programs that tell it only to bid on certain spots that have a guaranteed conversion rate or relative ROAS but using these bid strategies effectively means feeding in lots of data and letting the A.I. go through a learning phase each time you change strategies. This is a good idea if you’re trying to rebalance your marketing to achieve better results.
The important point to remember though is that if you focus on high ROAS or CPC values, your returns may not be as good if you can’t feed your bidding machine enough data to act properly. In that case, it may not bid enough to win needed ad space because it is being too selective.
Some folks are under the mistaken belief that you either MUST use automated bidding or never use it at all. The truth is, neither is correct. With the right preparation and work, automated bidding and AI can be great tools that can take a lot of the work and speculation out of bidding on ad space.
That being said, there are times when automated bidding just won’t work as well as doing things manually. Small budget campaigns, for instance, don’t typically fair as well. Additionally, overly difficult strategies don’t work as well without lots of time and input into the automated bidding system.
If you have the time to invest, automated bid strategies can be your best friend in marketing. If not, then you may be better off using the manual method and being your own judge. Don’t let skepticism sway you one way or another. Choose the option that works best for the situation you’re in. You may choose to automate some campaigns and not others, even ones running concurrently. The trick is finding what works.
That’s it. All the big secrets and lies about automated bid strategies you need to know to decide whether it’s right for your Google Ads campaign. Hopefully, we’ve given you all the info and tips you need to make the most educated decision possible for whatever it is you’re trying to accomplish.
If we can say one thing, don’t believe all the hype you read on either side and strive to find out the facts yourself.
As a business owner, you must know the importance of calculate cost/lead cost generation. It is a highly efficient way to generate new consumers, increase brand awareness and ultimately, increase your revenue.
Lead generation is one of the many ways of digital advertising/online advertising pricing model. There display advertising has been a steady growth in the amount of money spent by marketers on it, and this figure is expected to reach US$3.2 billion by late 2023.
Cost-per-lead (CPL) is a metric that businesses use to gauge their lead generation efficiency. It indicates how much a brand spends on its marketing efforts to attract a single lead.
However, not every lead has the potential to be a customer, and you have to qualify them to avoid wastage of time, marketing efforts, marketing team, and money.
Read ahead to see the importance of Cost per lead (CPL) and how you can calculate the amount you are willing and afford to ad spend on a customer.
It might seem more straightforward to choose a budget to ad spend on your quality leads instead of coming up with a strategy to select the best Cost per lead (CPL). While you can certainly do that, a target cost per lead (CPL) derived randomly will end up giving you unexpected results.
If you’re looking for tangible results, you don’t want to do that. It is essential to align the business goals you want to achieve with a target Cost per lead (CPL) as they differ from one to another, and a set percentage won’t be of any good. For instance, a profit-maximizing goal and doubling the annual revenue goal requires separate Cost per lead (CPL).
By being aware of your goals, you can decide how much you want to spend on them, according to their relevance and importance. It makes it easy to come up with various marketing strategies and carefully allot its budget.
The target Cost per lead (CPL) influences several marketing decisions, making it essential to choose it wisely and avoid wrong optimizations.
To calculate an optimal Cost per lead (CPL), you have to understand your businesses’ needs. Set the record straight with your goals and then proceed.
Of course, you want to target the right leads and spend money on getting beneficial outcomes, but before that, it is important to look at your marketing budget to check if the cost to acquire a customer falls in that range. To determine this cost, calculate a new customer’s average lifetime value.
Customer Lifetime Value predicts how much monetary benefit your new customer can provide your business with. While companies involving ecommerce don’t see customers returning, things get complicated if your business relies on local lead generation. Here customers can subscribe to services like Netflix or continually hire you for your services. Your CLV is based on all of these factors.
For instance, if a customer pays $19.99 every month for three years, that customer isn’t worth the same amount because that is just the money you get initially. In fact, they are actually worth $59.97, making it worthwhile to spend more than $19.99 to add a customer. Of course, you will lose some money initially, but the profits will be worth it as your relationship progresses.
Even though there are various methods to calculate the average CLV, here’s one of the easiest way to do so is:
Mean monthly revenue of a customer/churn rate = CLV
Let’s apply this lead formula to a practical example. Assume your company is a business widgets supplier with monthly delivery subscription models that other firms can also take advantage of.
In this case, use your company’s mean monthly revenue and divide that number by your monthly mean number of customers. For example, your monthly average revenue from a customer is $70 if 100 customers give $7,000 monthly.
To determine the churn rate, use the data for a specific month by subtracting the repeat customers from the whole number in the same month. Divide this value by the entire customer base of that month. For example, if you get 100 customers in a month and 90 are recurring customers, you get a churn rate of 0.1 or 10%.
Using these values, you can get the CLV with the help of the formula. For this example, the CLV is simply $700 ($70 / 0.1).
After figuring out your CLV, find out the actual profit margin. You have to calculate the cost to look after the new customer you get, for the entire time they’ll do business with you.
For instance, if the cost to take care of an existing customer’s requirements is $7 monthly for spending approximately ten months with you, it will provide fulfillment costs of $70.
Additionally, you have to consider more fixed costs of your business and divide those by the average monthly customer number. For instance, considering the same example, if rent, utilities, salaries, etc., amount to $5,000 monthly, that turns out to be $50 per customer monthly.
To calculate the mean profit per customer, a customer’s fixed and fulfillment costs can be used as in the equation below.
CLV – (Mean monthly costs of a customer / churn rate) = Profit of a customer
In this hypothetical example, the mean CLV was $700, and it costs $7/month to look after a customer for the business to proceed. For a customer, the monthly total average cost turns out to be $57. For a customer’s lifetime, this amounts to $570 ($57 / 0.1).
Subtract this value from the average CLV to get a profit of $130 ($700 – $570).
After calculating the amount, you can spend to convert a lead into a customer, work backward and figure out the cost you can bear to achieve this.
In an ideal world, we could consider the possibility of finding new customers out of all the leads, but those who have chased leads know how hard that can be. Use the following formula to calculate the amount you can spend on every new leads:
(Monthly sales closed / Monthly leads) * Profit of a customer = Maximum CPL
In the hypothetical scenario above, if you get 250 leads every month and close 50 out of those, you can spend $26 on every lead ($130 * (50 / 250)). If you spend more, you’ll lose money on each customer.
In addition, running and tracking metrics on a remarketing campaign means bounced traffic may not yet be a complete loss to you.
Even though you know your budget for a customer, it doesn’t solve the mystery of how much your target cost per Lead (CPL) should be, which ultimately comes down to your business goals.
Understand what your ultimate goal is. Is it to make tremendous amounts of money or reel in potential investors by showing you can get customers? The target cost per lead (CPL) for both cases will be different because you should be prepared to have some loss initially in the former case so you can build a solid customer base. Here, you will have a profit margin that is lower than the target CPL.
Of course, this is not a recommended business practice, but it is a clear indication of the importance of using the optimal Cost per lead (CPL) according to your goals.
Now that we have figured out how much you can and are willing to spend on your target cost-per-lead, let’s get to an essential part of this process: all the customers are not worth the exact cost.
Using the average CLV to choose a target Cost per lead (CPL) is a great approach, but what happens when you find more valuable customers to your brand? In this case, you have to assess what the right Cost per lead (CPL) will be according to the different customer types.
Let’s look at the ACME Widgets case because they sell the best widgets, and their average CLV is a whopping $24,000!
If you use the above hypothetical scenario calculations with the $24,000 mean LTV, a high acquisition cost per lead will be affordable for you.
However, it helps to know what types of buyers you have. In the case of ACME, there are three critical types of buyer personas, including Widgets Classic, Widgets Pro, and Widgets Infinity, with average LTVs of $1,750, $72,000, and $1.59 million, respectively.
These buyers with different LTVs enable you to spend differently on them. You can spend much more on Widgets Infinity leads than Widgets Classic on any day.
Not only this, your entire marketing campaigns/ad campaign varies with the different types, which you work on when you decide the optimal Cost per lead (CPL).
Compartmentalizing leads makes things simpler and enables you to spend wisely than choose some strict acquisition cost. For instance, Classic, Pro, and Infinity’s acquisition costs are $1k, $12k, and $202k, respectively.
These different buyer personas help you understand the amount needed in turning a lead into a customer. It will allow you to be more strategic in your approach towards the right Cost per lead (CPL).
For instance, an Infinity customer may require a target Cost per lead (CPL) Compaigns that is 80 times more than that of a Classic customer, but the higher cost shouldn’t budge you too much as Infinity would be a lot more profitable in the long-term.
If ACME Widgets would’ve stuck to an average figure to spend on every new lead, they probably would’ve closed most of the marketing channels and google ads that got them Infinity leads which would be detrimental to their business. Marketing channels are the most important thing!
For effective marketing campaigns that include a lead generation strategy, you have to invest time, cost-effectiveness, money, and effort to get valuable results.
Picking the right target cost-per-lead requires accurate thought and calculations so you can focus on the customers appropriately and optimize the right aspects of your paid marketing plan. This is particularly true if you’re manually doing the work and not automating your bidding on keywords in PPC. One of the most important things to recognize in this entire process is your business goals to identify the optimal Cost per lead (CPL) that your marketing campaigns/lead generation campaigns requires. Additionally, you have to consider your customer base to make the right decision.
Know the search engine optimization leads you want to focus on because not all of them are the same. Once you have this idea, it’ll be easy for you to make an informed decision rather than picking random figures and wasting your time and money!
Engage our PPC management services today and find out how we can help you dial-in your cost-per-lead!
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