Absolutelee.com

A few posts ago, I talked about Steven Aitchison’s (The Blog Consultant) foray into search engine marketing (SEM).

Steven is selling Amazon products by writing Google AdWord ads and sending the clicks straight through to Amazon’s landing page. In other words, Steven does not have his own website in between the ad the prospect sees and the Amazon product he’s trying to sell.

This is a very simple model for internet marketing, which has a lot going for it.

For one thing, campaigns are more easily analyzed this way than if you had your own intervening webpage. There are fewer points along the sales path that you the internet marketer are in control of.

You control the ad the prospect sees, because you write the ad.

You can have a great deal of influence on how many times your ad is seen by the prospect, and how high up in the search list it appears by…

(Sorry, I’m back. I had to go check out Federer and Nadal at Wimbledon.)

As I was saying, you, the internet marketer, write the ad, you influence how many times it’s shown and how high in the column of ads it appears. (You do this by setting the daily cost and the amount you’re bidding for your keywords.)

You also control what you’re selling, which is important because some products have larger profit margins than others, some are an easier sale, etc.

But that’s it, if I’m not mistaken.

That’s all you control.

In this type of affiliate marketing, all you do is pick the product, write the ad, set your daily limit, and bid on keywords.

Having done this, you kick back and watch the numbers roll in.

At the beginning of such a campaign, your goal is not making money so much as it is understanding the metrics (numbers) of your campaign.

So, let’s look at Steven’s metrics and see what we can understand about his campaign.

Here’s a screen shot of his totals (minus the part that doesn’t show up on his post, for some reason).

I don’t have the headings for his numbers, but they read:

clicks, orders, orders dispatched, spent, earned (lost).

So, to date, Steven has 1117 clicks and 97 orders. He’s spent 225.71 pounds ($454.06), and his revenue is 140.94 pounds ($283.53) .

I have one question about these figures. Steven separates the money he’s actually received from the money he should receive if all of his orders are “dispatched”, whatever that means. (Obviously, I understand the meaning of the word “dispatched” in general, just not in this context. It would probably help if I were English, instead of American. I left a comment on Steven’s blog and asked him if he could clarify this for me. Once I know for sure, I’ll annotate this post.)

For the moment, we’ll just assume the money Steven has earned is all he’s going to earn on these clicks.

So, as I said before, the important ratios here are Click Through Rate (CTR), Cost Per Click (CPC), and Conversion Rate (CR).

We can’t calculate his CTR, because we don’t know how many times his ad was shown–number of impressions.

CTR is important, because Google is a performance based system. In other words, what influences where your ad appears in the list of ads is not only how much you bid for your keyword, but your CTR. An ad with a higher CTR will tend to appear higher in the ad ranking than the same ad with a lower CTR (everything else being the same). This makes total sense, because Google makes more money this way.

To go into this a little further, suppose you’re selling two items, Item A and Item B. You make $0.05 every time you sell Item A. You make $0.25 everytime you make Item B. So, Item B is the one you should push over Item A, right? Not necessarily!

For the same amount of advertising, suppose you sold 600 units of Item A, whereas the same amount of advertising would sell only 100 units of Item B. You would make $30.00 from Item A, where you would only make $25.00 from Item B.

It’s not just the profit margin per item that’s important. It’s how much of the item you can sell for a given amount of advertising.

This is why Google can make more money on a keyword with a smaller bid over a keyword with a larger bid, if the smaller bid keyword is clicked on proportionately more often.

For our example here, this is all mute, because Steven is not showing the number of his impressions. So, we can’t calculate his CTR.

Just to sum this part of the analysis up, you need to keep up with all your metrics. CTR is important because it gives you some insight as to why your ads are ranked where they are.

Now, to move on to what we can calculate.

Steven has had 1117 clicks and 97 orders. From this we can calculate his conversion rate (CR). This tells us how many clicks he needs to make a sale.

Dividing the number of orders by the number of clicks, we get his CR, which is 8.7%

Dividing the amount spent by the number of clicks, we get $0.41 per click.

Before Steven’s CR was 7% and his CPC was $0.58.

So, his paying $0.17 less per click, which is good, and he’s getting more sales per clicks, which is also good.

In other words, this part of the campaign is moving in the right direction, cheaper, more effective advertising.

Yet, the rate at which Steven is losing money seems to be growing. Now, here’s where I need clarification about the “orders” vs. “orders dispatched” in order to continue this analysis.

It looks like Steven is probably not making enough profit on his product.

In his blog, he mentions he’s selling books. You can’t make a whole lot of money on books. They just don’t sell for that much.

Although Steven’s CPC is decreasing, I suspect it was way too high to begin with for the product he’s trying to sell, and it’s still too high.

Making his campaign so transparent for everyone to read is a great service to everyone interested in internet marketing.

If you get any hard information from people at all, it’s usually only the gross amount sold, which is almost worse than useless. (It’s not revenue, but profit that counts!)

I hope Steven continues to tell us about his campaign.

I’m sure he’s learning a lot, and considering how much money you can make with affiliate marketing, the cost for his education is ridiculously small!

Best of luck to Steven!

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This entry was posted on Sunday, July 8th, 2007 at 1:23 pm and is filed under Online Marketing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.