Is your business bleeding from your pay per click program (PPC)? Are you thinking about doing a Daily Deal with one of the many Daily Deal sites but can’t give up the margin hit?
Google launched Adwords in 2000 and by far it is the most famous and largest PPC program in the world driven through keyword marketing. In fact, according to Google’s latest 10K filing – at $31 Billion of revenue, a majority of its revenue is derived from Adwords or PPC marketing. So in just 11 years you can see how the majority of the world has adopted PPC marketing.
How long did it take your business to adopt Google Adwords? What percent of your online revenue is PPC marketing today? And if your PPC marketing is generating more than 10% of your online revenues are you feeling uncomfortable with this exposure? What would happen if Google changed its pricing mechanism or algorithm and your PPC results fell off the cliff? Shouldn’t you be thinking about how to mitigate your channel exposure to PPC?
First let’s try and clear the analytics fog…..we will first determine a Cost Per Order (CPO) range for a business using pay per click marketing. Then let’s compare the CPO from a PPC deal to the CPO from a Daily Deal offer and I sense you will find the learning interesting and informative.
Calculating a CPO under PPC (an example)…
Let’s say you had a monthly ad budget of $5,000 to spend on PPC. You set an allowable, blended-per-keyword clickthrough rate at $1.50. So your number of clickthroughs would be 3,333 before you exhaust your budget. Your net product margin is 30% at an average product retail of $90. You convert 1.5% of your site traffic to buyers. What would your CPO from this PPC case study look like?
But first does your organization calculate your PPC according to CPO by keyword and by campaign? Or does it fall into a trap of keeping track of just cost per clicks? Now let’s have you put your own numbers into the template formula presented below. I suspect most of you will see a PPC CPO of around $25-50+ per order. This PPC CPO marketing analysis is vital to running your business especially if you have allowed PPC to be more than 25% of your marketing budget.
So your $5,000 PPC monthly spend yields you 3,333 ($5,000/$1.50) clickthroughs to your website. You convert 1.5% of these site visits to orders or 3,333 x 1.5% = 50 orders. At your product margin of $27 (30% X $90) X 50 orders you have a total positive product margin of = $1,350 from PPC. So you have a media allocation of $5,000 media spend minus positive product margin of $1,350 = $3,650. $3,650 divided by 50 orders your PPC CPO = $73.
Wow…Ouch…can your business afford to spend $73 to capture a new customer? Now what is your plan to continue to build sales relationships with these customers? Most business receive just 1 to 1.5 orders from their 12-month buyer group. How would you plan to lower your customer investments?
More on this in a minute…
Now, lets compare the cost of PPC CPO to what it would cost your business to capture a new customer if you used a Daily Deal marketing channel.
Your business puts out a Daily Deal which you discounted 20% from you normal average order of $90 (remember on The ShoppeSimple Network you don’t have to give up 50%). That means you just gave up $18 of your margin. Using the ShoppeSafe Daily Deal channel you also didn’t give up anything out of your back-end split so you have a new customer acquisition cost of $18 per customer. The challenge, one could ask, is will the business get 50 orders. Well, I would challenge this and say at a factor of 4 you would be equal at just 10 orders. So where do you want to be? From my seat a customer acquisition cost of $18 from a Daily Deal is a lot better than $73 (your CPO of PPC).
So you can see something changing in the business marketplace and perhaps why these Social Coupon sites are growing as fast as they are. $18 CPO vs. $73 COP. You can also see perhaps why Google wanted to buy the biggest Daily Deal site of them all.
The research firm, ForeSee in their most recent findings,
“based on a spring survey of more than 22,000 shoppers who frequent the web sites of the top 100 merchants in the Internet Retailer Top 500 Guide; nearly two-thirds of respondents said they subscribe to offers from at least one daily deal operator.
Larry Freed, CEO of ForeSee, says the research combats recent skepticism from analysts about the sustainability Social Coupon industries business model. “I don’t think anyone should be signing any death certificates yet,” Freed wrote in a blog post yesterday. Deal sites bring new customers to a brand and that is clear from the data we are seeing.
Additional data shows, “about two-thirds of daily deal subscribers had bought a deal within the previous 90 days, and 89% of those respondents had redeemed their vouchers during that time, the data show.”
The balance of the survey showed that “of the consumers buying daily deals, 38% were frequent customers of the merchant offering the voucher and 31% were new customers. 27% were infrequent customers and 4% were former customers.”
At The ShoppeSimple Network we don’t dictate the pricing for your Daily Deals….you do. That is entirely your call. AS IMPORTANT: We also do not take a share or your margin in the back-end so you cap your total customer acquisition costs at a fixed level. These are key differentiators in working with The ShoppeSimple Network and what makes our ShoppeSafe Daily Deal program so different than everyone else.
Plus, once you acquire a new customer, our Sustaining Social CRM e-commerce system helps you stay in front of these consumers every day with highly relevant offers delivered to wherever these consumers want to see them. Your consumers can buy and share your offers with their trusted family and friends through social and mobile sharing. The result is more business, new customers, higher average orders, increased customer frequency and more brand impressions.
My intent with this post was to set up a juxtaposition of PPC and Daily Deal marketing for you to compare the customer acquisition costs of each channel. Now, you are in a better position to try a Daily Deal and hopefully it is with The ShoppeSimple Network where you are in total control of your discounting and your back-end margin.
We provide our customer acquisition and Sustaining Social CRM solutions for an affordable monthly fee, without implementation fees and you will be up and running in less than 10 days. Why not think about using us as a new customer acquisition tool just in time for your Holiday Marketing efforts?
To learn more about what we have going on at The ShoppeSimpleNetwork.com simple me give me a call at 612-349-2740 or email me at firstname.lastname@example.org
PS. Check out our latest on-demand webinar titled “Is Your Social Toast Burning”.