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Optimizing Paid Search Advertising
Author: Kevin Gold
Published: Tuesday, November 09, 2004
Is Your Paid Search Advertising Generating Positive Financial Results?
As an online business, you may be familiar with or currently utilize “pay for performance” search engines to send visitor traffic to your website. Also known as pay-per-click, PPC or paid search, it has literally taken the online marketing world by storm especially the two largest players, Overture and Google Adwords.
A 2004 “New Methods in Search Marketing” study by Piper Jaffray stated that “paid search constitutes more than 87% of U.S. search market revenues.” This staggering statistic begs the question, “Are advertisers achieving a positive return on their paid search investment?” In other words, are sales being generated or is money just being spent?
The answer to this question may stem from understanding the role of the two critical performance metrics generated by all paid search campaigns (1) click-through rate and (2) website conversion.
The click-through rate is defined as the percentage of times a paid search ad is clicked on out of the total number of paid search ad views within a given period of time.
Click-through Rate (a.k.a. CTR) = Click-throughs (i.e. Total Visitors) / Impressions
For example, if your paid search ad is seen by 10 users and one user clicks on your ad, the click-through rate is 10 percent.
Website conversion is defined as the percentage of users who visit your website and complete your primary objective (i.e. purchased a product) out of the total number of users who visit your website in a given period of time.
Website Conversion (a.k.a. sales conversion) = Sales / Click-throughs (i.e. Total Visitors)
So what role does each play in understanding the effectiveness of a paid search campaign?
Standard practice among advertisers is to concentrate on writing ads that achieve a high click-through rate to send more visitor traffic to their website. Unfortunately this general assumption, “more traffic equals greater positive results”, is flawed.
Consider this. Which click-through rate is better?- A 20% click-through rate for a paid search ad that achieves zero sales (0% website conversion).
OR
- A 0.2% click-through rate for a paid search ad that achieves 10 sales (10% website conversion).
The answer is obvious. The click-through rate, especially for newly setup PPC campaigns, is relative – it is the website conversion rate resulting from visitors clicking through a particular paid search ad that defines success or failure.
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