Pay per click or PPC can be used very effectively to kick off a new online marketing campaign or to target an existing one. It takes a little time to decide upon suitable keywords and then to construct the adverts and set the bids. Each stage needs careful consideration so that you will get the best possible value for money and that each click has the potential to become a sale. Knowing your target audience is also a crucial factor because if you can understand this, you will be well on your way to success. So, how do you work out how to set the bids? Take a look at this
“Customer Lifetime Value” is a critical metric that enables you to optimize the long-term profitability of your pay-per-click advertising. CLV answers the simple yet powerful question, “How much is a new customer worth over the long-term?”
It’s an important concept that almost every large retailer uses. Smaller retailers should use it too. It enables you to calculate your maximum PPC bids analytically, rather than arbitrarily. That alone gives you a big advantage over competitors who don’t make similar calculations.
Take Wag.com for example, a subsidiary of Amazon. It sells pet food and related products, which consumers tend buy repeatedly throughout the year.
Wag.com invests time in understanding the lifetime and long-term value of its customers, which enables it to know exactly how much revenue and profit to expect from each customer, on average.
It can also differentiate between the value of customers based on what they buy, which helps Wag.com determine optimal PPC bids. Dog food buyers may be worth more than cat food buyers, for example, and would thus justify higher bids.
Armed with this CLV data, Wag.com can approach its PPC bidding strategies much more strategically than other retailers. It knows the precise value over the long-term of the customers it acquires through PPC, which allows it to calculate exactly how much to bid to maximize PPC profits over the long-term, not just the short-term.
Here is a three-step approach that shows how Wag.com, or any other company, can calculate CLV and maximum bid per click by product category.
Step 1: Calculate Average Revenue per Customer for a Product Category
For instance, imagine Wag.com knows that of 200 new customers acquired through PPC who first purchased dog food, it subsequently received 800 orders over 12 months, generating revenue of $48,000. It can calculate $240 — $48,000 divided by 200 — in revenue from each new dog food customer over the course of a year, on average. Click here to continue