A better way to measure website profitability

hoangvu

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The inability of CPA to lead to any actionable strategies has led to the creation of two alternate
measures by which you can assess the profitability of a website: cost-per-visitor (which in payper-
click advertising translates to cost-per-click, or CPC) and $/Index.
The $/Index is calculated by dividing your total revenue by the total number of visitors.
Unlike the CPA metric we discussed above, $/Index can be calculated for any page on a website.
This makes it very useful as a tool for measuring the effectiveness of a page (we discussed how
to do this in the previous chapter).
In other words, you can directly compare the $/Index to the average price you’re paying for
each visitor to tune your bid prices.
A quick example to illustrate these points: Let’s take a one-page website that purchased 1,000
clicks from Google AdWords for $2,350, and another 300 visitors from Microsoft Bing for $150.
Through the process of converting visitors on this page, the website generated 25 customers at
an average order size of $100, for a grand total of $1,875 in revenue

better-ppc.jpg

We calculate the CPA by dividing our total traffic acquisition costs ($2,100) by the total number
of customers (25) to arrive at $84/customer. This is well below the $100 average order size,
so you know we turned a profit. If you stopped here, though, you would be leaving quite a bit
of money on the table.
This becomes apparent when we calculate the $/Index for the page. This figure is equal to
$1.92, which we arrive at by dividing the total revenue ($2,500) by the total number of visitors
(1,300). This figure gives you a sense of how much a typical visitor to this page is worth to us.
Next, we compare that with the average cost-per-click (CPC) that we’re paying each engine.
The CPC for Google AdWords is $1.95 ($1,950 total cost divided by 1,000 visitors). The CPC for
Microsoft Bing is $0.50 ($150 divided by 300 visitors).
This is actionable information. These figures tell us that we’re actually losing a few cents per
visitor from our Google AdWords traffic. In contrast, we’re paying a very attractive price for visitors
from Bing.We could immediately improve profitability by lowering our average CPC for
the Google AdWords traffic (we would get less traffic as a result). At the same time, we would
raise our average bid price for Bing traffic to increase the amount of traffic from that source.
Later in the book are various strategies for profitability adjusting your average CPC (either
up or down). For now, though, we want to consider another possible outcome of this exercise.
What if, instead of adjusting our bid prices on the search engines, we made this landing page
better?
In our example above, the landing page converted visitors at the rate of 25 out of 1,300.
Dividing these figures gives you a conversion rate of 1.92%.
If we found a way to improve this landing page so that it converted at a slightly higher rate—
say, 35 out of 1,300 customers (2.7% conversion rate)—our $/Index would increase to $2.69
($3,500 total revenue divided by 1,300 visitors). This means we wouldnt have to lower our average
CPC on Google; we could even possibly raise it and get even more traffic!
While this example is overly simplified, it is quite representative of the interplay between bid
prices and landing page conversion rates that we encounter in the real world.Website owners
are usually in a big hurry to get their PPC campaigns rolling, but this is a huge mistake if they’ve
never given a moment’s attention to their landing page conversion rates.
SUMMARY
You should always start your optimization efforts by building a traffic map, as covered in the
previous chapter. Next, you’ll use this map to determine and optimize the length of your sales
funnels by eliminating unnecessary pages. Finally, you’ll carefully assess and improve the
remaining pages to maximize their contribution to your overall revenue.
 

aixporter

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Very extensive! Another point to add is to take into consideration that different markets Bing, Google and Yahoo target. Remember that the non-technology conscious population still use Yahoo search engine for many parts around the world. Microsoft's Bing, is also centered around a "decision search engine". This way, your website profitability will likely decline if you market a product such as "Dedicated server hosting" on a yahoo search engine rather than Google search.
 
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