Prof_Chadwick: Should be watching football but just finished writing case study on Red Bull which will appear in forthcoming book on sport entrepreneurship
jonathanjoseph: Late to reading this, but as usual @andrew_chen is spot on. Metrics in a vaccuum are meaningless #entrepreneurship http://bit.ly/11fAB3
jirosenbloom: @randallkane weekend was good, enjoy your time off!!
new tweets for @solideacapital – check out interesting article about entrepreneurship!
In Google AdWords Management, there are many metrics to consider. (“metrics” is just a fancy way of saying “numbers”). You need to know your CTR (click-through rate), your conversion rate, and the average sales volume per conversion to name a few.
But perhaps the most important metric – at least the one you need to know to absolutely dominate your competition – is the average lifetime value of a customer. Here’s why:
If you know the average lifetime value of a customer, then you can confidently bid higher than your competitors. To understand this concept, let’s use an example:
Let’s say that you are an attorney, and you are bidding on the keywords “divorce attorney”. And for the sake of discussion and for easy math, let’s say that the average cost per click is $25.
In the above scenario, if you get 20 clicks, then the total cost of those clicks is $500. If your sales conversion rate is 5% then you will likely convert 1 of those clicks to a sale. And if your average revenue per sale is $1,000, then for every 20 clicks or $500 spent on AdWords, you make $500 ($1,000 commission – $500 AdWords cost).
Well, given that scenario, your competitors may be willing to spend more than you. Perhaps they are willing to spend $30 or even $40 dollars per click. After all, if they can duplicate your conversion rate and your revenue per sale, then they would still be making a positive cash flow, right?
Here is where you can dominate them. They are only thinking about the next sale, right? Thus, they are looking at how much revenue that customer is worth today? In order to dominate them you need two things:
1. A forward-thinking strategy
2. Cash-flow
Let me explain. If you know your numbers AND you have sufficient cash flow, you can definitely beat your competitors and dominate them when it comes to Google AdWords campaign strategy. But in order to accomplish this feat, you need to know a key metric – that is the lifetime value of a customer.
First, let’s define the word “lifetime”. In this particular case, let’s call “lifetime” 3 years. (Yes, I know lifetime could mean much longer than that, but for many businesses, 3 years is a LONG time.) If you know that the average customer will spend $2,000 with you over a lifetime (in this case, 3 years) AND you have sufficient cash flow to play the “waiting game” then you can absolutely dominate your competitors because now you can afford to bid higher on certain keywords than they can.
For instance, your competitors may determine that the most they can spend per click is $40 because they are only thinking about the revenue from the next sale, but since YOU are thinking about the total value of the customer over a “lifetime” AND because you can afford to wait to earn that money, consequently, you are willing to bid higher than your competitors for certain keywords.
All things being equal, the good news is that because you know your numbers, in the long run your Google Adwords campaign will be much more profitable than your short-sighted competitors even though you are bidding higher than they are.
If this scenario seems complicated, then perhaps its time to hire a professional to manage your campaign for you, or perhaps it is time to invest some money and some time in learning your metrics and a better Adwords management strategy.
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