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What Are Google AdWords
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Before You Sign Up

Before you even consider shelling out valuable advertising dollars, you should consider two things: is AdWords even necessary for your business, and is it worthwhile? If you decide to go for it, you need to do some market research to figure out the keywords that might work for you.

Is it necessary?

You might just have all the free, targeted advertising you need in regular Google search results. And as good as AdWords are, nothing beats a great ranking when it comes to click-throughs. (For proof, ask your friends if they ever read or click the sponsored links. You’ll be amazed to find that most people ignore them completely.)

Run a few Google searches using keywords or phrases you’d hope (not expect) would trigger your site in results. Make note of those in which you appear above the fold—typically the first five results or so. If you’re consistently showing up near the top, consider putting that ad cash elsewhere (toward other keywords, for example, or other marketing outlets entirely).

If you’re making it into the top ten results, but not the top five, think about whether pumping those advertising dollars into a bigger and better site might net you some more attention and links—perhaps enough to raise you a result or two in the regular rankings. Of course, $5,000 or $10, 000 can buy a lot more in the way of site improvements than AdWords ads.

Is it worthwhile?

The biggest mistake people make before joining AdWords is not figuring out how much clicks are worth to them. That’s like wandering into a car dealership knowing you need a new auto but having no idea how much you can afford. Before you know it, you’re driving out in a nice convertible that costs more per month than your salary.

Fortunately, there are a few fairly simple calculations you can use to figure out how much you can sanely spend on AdWords, or whether the costs are even worthwhile for your business.

The first step is to figure out how much you’re willing to spend for every sale. For example, if you sell fur-covered, roof-mounted ski racks for $3,000 a pop, and your gross margin (the amount you make after factoring in your costs) is $1,500, you might be willing to pay $200 or more to make a sale. If you sell fur-covered mountain bike seats for $250, you may be willing to spend only about $30 for a sale. (Unfortunately, there’s no general rule of thumb for determining your maximum cost-per-sale; it’s a business decision you have to make independent of AdWords.)

Once you’ve determined a maximum cost-per-sale, you need to get your head around a conversion rate, the percentage of people who click your ad and then actually buy a furry item. Conversion rates can vary from campaign to campaign, but industry experts say that a rate of one percent is fairly common. You read that right: Only one out of every hundred people who click through to your site is likely to actually spend money.

With your maximum cost-per-sale and an estimated conversion rate, you’re ready to do some math.

Note: Weirdly, you do this math before you have a clue as to how many people will see your ad or what your click-through rate will be. That stuff comes next.

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