Affiliate Adwords: Know The Cost
I made a blog post recently on Adwords and costs - for example, say you pay $1 per click, and 5% of the people buy (a very good rate). You can figure out the cost per sale easily with a little math:
(PRICE PER CLICK) / (PERCENTAGE BUY) = (AD PRICE PER BUY)
In our case, $1 divided by 5% (0.05), or
1.00 / 0.05 = $20.00
or $20 per buy.
Look at it another way:
- You spend $1×100 or $100 to get 100 people there.
- You sell 5%, or 5 copies per 100 people.
- $100/5=$20
The first formula is a good one to remember in Adwords, for a very simple reason: this is the price you pay per item, and if you don’t make that much back in sales, you’re losing money!
So in this case, if all other figures were the same, you’d have to pass at anything selling for less than $20, and you might even want to ignore anything below $25 (to make up for returns, fluctuations in visitors, etc.)
Of course, you can change this, keeping in mind the formula:
- This is a 5% purchase rate - for every 100 visitors, 5 buy. If your site can do better (say 7%) then the cost per sales goes down - and your ‘wiggle room’ per product grows. At 7% for example, you could now consider produces selling over $1.00/0.07 or about $14.29 in this case.
- You can pay less per click. That’s the idea behind “long tail” ad entries - long phrases that don’t get bid on as much, but that people DO search on. Pay 80 cents instead of a dollar for instance, and you’ve decreased your costs: $0.80/0.05=$16 spent per buy now instead of $20.
- Sell more valuable products. After all, you want to make money, so instead of a dollar or two profit per item, look for ones selling higher. Of course, the math comes into play again: You might only be getting 2 or 3 percent success on the new item, which can change your actual costs yet again!
- Sell MORE products. Pick a product that sells well, and you won’t mind a smaller profit. For example, who wouldn’t want $1 profit per item, but selling 3,000 each and every day?
This just gives you an idea of how to figure out your affiliate sales, and how much Adwords will cost you. Learn how these items balance (cost per click, buy ratio, and price per buy) and you’re well on you way to profiting with each Adwords buy - unlike far too many others.
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