Bidding on Adwords can easily lose you a ton of money. You need this simple formula to make sure you don’t.
The formula is
Adwords Bid = Revenue x Website Conversion Rate x Percentage of Revenue Spent on Advertising
You may be bidding far too much if you do not use this formula.
You need to know the following three things before you can calculate your Adwords bid.
1. Revenue for each brand/product line you are advertising.
2. Your website’s conversion rate
3. How much of your revenue per brand/product line you want to spend on advertising.
Going into more detail.
1. Revenue – You will be advertising by a brand or product line on Adwords. You need to know your total revenue from these products.
2. Website Conversion Rate. How many unique visitors to a brand or product line section on your website end up buying from you. For example for every thousand people to the soap section on your website two people buy. This would give a conversion rate of 2%.
3. Revenue Spent On Advertising. For every dollar of revenue from ACME soap you want to spend a ten cents on advertising. This equates to spending 10% of revenue on advertising.
Bolting all of this together into a simple example.
-You sell a soap package for 100 dollars.
-You want to spend 10% of revenue on advertising.
-Your website section/category has a conversion rate of 2%.
Putting these numbers into the formula it looks like this.
Google Adwords Bid For Soap = 100 x 0.1 x 0.02
Your Google Adwords Bid = 20 cents.
This figure might be a lot lower than you imagined.
It is important to be realistic with your Adwords bids.
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