If you found it easy to follow along the calculations to determine your maximum CPC bid, feel free to skip these examples and close this post :).
In any way, these examples should make you feel more comfortable in doing these calculations yourself. It can be a good idea to do the calculations yourself before looking at below solutions.
Example #1: Company A (Retail clothing company and crowdfunding platform)
Assume the following:
Assume the following:
Assume the following:
In any way, these examples should make you feel more comfortable in doing these calculations yourself. It can be a good idea to do the calculations yourself before looking at below solutions.
Example #1: Company A (Retail clothing company and crowdfunding platform)
Assume the following:
- 7% of users who click on a search ad turn into buying customers
- The average customer makes an order of $80
- Company A occurs costs of $32 per average order
What is the maximum they should bid per click?
- The value of one visit to Company A’s site is 7% x $80 = $5.60
- Company A’s profit margin = $48 / $80 = 60%
- Company A shouldn’t bid more than 60% x $5.60 = $3.36 per click
Assume the following:
- 10% of users who click on a search ad sign up for his newsletter
- 3% of the newsletter subscribers later convert into his design consulting services
- The average customer buys services worth $5,000
- Company B’s profit margin is 75%
- Since the newsletter itself doesn’t generate any profit, we have to take into account the conversion from newsletter subscriber to actual customer. Hence, the value of one visit to Company B’s site is 10% x 3% x $5,000 = $15
- Company B shouldn’t bid more than 75% x $15 = $11.25 per click
Assume the following:
- 2% of users who click on a search ad sign up for a sales demo (they become leads)
- 10% of the demos convert into a subscription to Company C’s services
- The average subscription lasts 3 years and costs $800 per month
- Company C’s profit margin is 30%
- Since the demos themselves don’t generate any profit, we have to take into account the conversion from lead to actual customer: 2% x 10% = 0.2% of website visitors turn into customers
- The conversion value equals $800 x 36 months = $28,800
- Thus, the value generated by one website visitor = 0.2% x $28,800 = $57.60
- Company C shouldn’t bid more than 30% x $57.60 = $17.28 per click
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