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Advertising on Google: The High Performance Cookbook
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Use simple math to figure out how many clicks you can get with your target AdWords budget by reviewing average CPCs for your industry. You can take this information a step further by taking into consideration your current conversion rates to figure out what types of returns you can expect from AdWords.
First, understand average CPCs for your target keywords by following the steps outlined in the Analyzing budgets and bids to determine market saturation recipe.
One of the most important metrics you'll want to set for yourself is how much you are willing to pay for each conversion and then optimize AdWords campaigns with that goal in mind.
The cost-per-conversion is often referred to in the PPC world as your CPA.
Cost-per-action (CPA) = Total Cost / Conversions
CPA as cost-per-action usually corresponds to pay-per-lead, while CPA as cost-per-acquisition usually corresponds to pay-per-sale.
There is no such thing as high or low CPA that we can generalize across all advertisers. CPA is relative and different business models will have different CPA thresholds. For example, a lawyer could pay $400 for an AdWords lead but that lead could result in a case that brings the firm millions of dollars, in which scenario a CPA of $400 would be a bargain.
Your returns will vary based on a variety of factors, including your website, how compelling your products and services are, pricing, and special offers to name just a few. Your conversion rates will also vary based on how you stack up in all of these considerations against similar businesses online.
I've had clients who said that one of their conversions could pay for a month of their advertising costs due to the nature of their business, and I've had clients who were only willing to pay a few dollars for each conversion, as the average value of each converted user was much lower. How much you should pay for each conversion will be unique to your business model, goals, and objectives.
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