PPC Click Through Rates vs. ROI: What’s Really Important?

While Click Through Rates Matter, it's Conversions that take the Question out of the Value of PPC
In PPC, there is no Question that Conversions Trump Click Through Rate (CTR)

PPC Click Through Rates vs ROI

One of the most common questions we get from website owners is: What is a good click through rate for a PPC campaign?

This question is not as cut and dry as general click through rates for organic listings… PPC click through seems to have a much higher degree of variance based on the keyword itself, the relation of the keyword being searched to the title, text and visible URL in the ad, etc…

You have to do keyword research. Some keywords lend themselves to a higher percentage of PPC clicks. These are typically terms related to purchases… the statistics that I have seen vary widely but all indicate that if the person is in an information gathering / research mode, they tend to click on the organic results. However, if a person is closer to making a purchase then the PPC click through rate increases significantly. As you know this tends to be especially true for the longer tail more specific terms… in many people’s minds paid advertising is closely related to coupons or other advertised savings and this may be a factor in a persons decision to look at paid vs. organic listings.

When you look at click through rates for PPC you will see ads with click through rates anywhere from under 1% to as high as 30%. Again, this really just depends on the keyword, the ad, and the nature of the product or service being represented, etc…

To understand what is a good click through rate you really need to look at the Net Profit per conversion. Then through keyword analysis we can get a good understanding of what the Cost Per Click will be and how many clicks they can expect to receive for that term based on historical information. Then we can get an understanding of what type of conversion rate we need to achieve in order to ensure a profitable campaign.

It is better to have a 2% click through rate with a 10% conversion, than it is to have a 3% click through rate with 5% conversion.

Honestly, an 8-10% click through rate is outstanding.

But click through does not tell the whole story. All that really matter is ROI. If you want to know how to set proper goals for a PPC campaign, what you really need to do is understand this equation:

(Cost Per Click) x (estimated clicks per day) = Estimated Campaign Costs per day
(estimated clicks per day) x (conversion rate for landing page) = estimated new clients per day
(Campaign Costs per day) / (estimated new clients per day) = Cost Per Acquisition
(Net Profit per new client) – (Cost Per Acquision) = ROI per new client
(ROI per client) x (estimated new clients per day) = Estimated daily profits from campaign

On average they make $50 per new client
CPC = $1
Estimated clicks per day = 100
Conversion rate for landing page = 10%

Then, here is an example campaign analysis:

($1) x (100) = $100 estimated campaign costs per day
(100) x (.1) = 10 estimated new clients per day
($100) / (10) = $10 estimated cost per acquisition
($50) – ($10) = $40 ROI per new client
($40) x (10) = $400 Estimated daily profits from campaign

“The only question is… why aren’t you doing this already?”

The truth is, once you understand this you will be able to set reasonable goals for a PPC campaign, but still, the only way to meet or exceed those goals is through top notch implementation and campaign management. That is where we come in!

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