Google AdWords for small business

[Paul – FS Concierge]

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I have seen some $900.00 words in the US. They related to specific diseases caused by environmental abuse so they potentially could lead to lucrative cases.

The price however is only part of the picture and if your advertising is done well, it should not be the driver.

The driver should be Return On Investment.

In my location and industry, I paid $12.00. Around 20% of clicks resulted in calls. Around 40% of calls resulted in new jobs. The average lifetime profit of a customer was around $10K.

So to break it down:

If I paid $1200 for 100 clicks, this would result in:
20 Calls. Of the 20 Calls, around 15 were a perfect fit for my business.
Of the 15 perfect fits, I would win 8-9 jobs. My average yearly profit per job is $3K.

So overall, my ad spend of $1200 would yield around $32K profit.

Each job averages 3 years so the $32K can be multiplied x 3.

If I were to sell my business, the goodwill value is around 1.5 to 1.8 x the yearly profit so removing expenses, let’s say 1.0 x multiplier, or another $32K

So going back to price, if you were paying 20c to sell a 50c item, vs $100 to sell a $10K item, you would probably choose the $100 price most times.

[Steve the Bartender]

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[USER=78928]@Paul – FS Concierge[/USER] – I understand that it is about ROI rather than $ spend – I meant that it sounds expensive for that product / industry.

[Aidan]

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The bids are driven by competition, the bigger the lifetime customer value, the higher the advertisers will bid. The key is to understand what your customer lifetime value is so you can evaluate like Paul has above.

Just saying “$x is expensive” means nothing unless you have done the exercise. That means you need to count the resale value too if you get repeat business (or long term contract value if you have a recurring service). You can also count referral value (a kind of goodwill) when you know that on average every client leads to others through their referrals if you’re any good.

A common example is the commercial cleaning niche where a client can be worth many tens of thousands of dollars over an average term (without thinking of their potential referral value) – spending a couple of hundred bucks for an enquiry is nothing to them.

The not so clever operators will just say “I’m not paying Google several dollars a click” without thinking it through and miss out big time.

[Steve the Bartender]

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All very true but [USER=28729]@Helen27[/USER] is selling party supplies where the average spend is (I’m guessing here) $30-$50, $2.80/click will heavily cut into your margin.

Even if the website converted at 10%, that’s $28 of ad spend.

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