We have been having this discussion a lot lately with current and potential clients. How much should you invest into a Pay Per Click (PPC) campaign to get the Return on Investment (ROI) that you desire? SmartROI Consulting, LLC. advises people to go larger at first to see what the full impact can be then scale down or up accordingly once we have built significant data.  Below is a simple formula to follow when calculating your ROI.

Start with the “Average Lifetime Value” of a customer. How much is a customer is worth over the period of time that you work with them?  Do they make a one-time purchase, or will they be a loyal customer that may spend money with you every month of every year? For this example let’s take an average lifetime amount of someone who places an order with you every month, of which you earn $200 in revenue. If the average customer is with you for 5 years before they move or change needs, then this customer is worth $12,000 to your bottom line!

$200 x 12 months x 5 years = $12,000

If we want a 50% Return on our Investment, then we want to spend $10 to earn $15, or $100 to earn $150. In the previous example, if we spent $8000 to earn this customer, then we make $12,000 from them, which is a 50% return on investment.

How much would you like your website to earn?

The “Conversion Rate” of the site is a very important thing to measure. In order to find this, you need to use tracking and analytical data to source how many visitors are coming to your site, and how many of those are turning into paying customers. If you have 100 visitors to your site and 5 of them ‘convert’ into customers, then that is a 5% “conversion rate”.

If your goal is to bring in 10 new customers per month and your conversion rate is 5%, then you would need to attract 200 visitors to your site in order to turn 10 into paying customers.

How much do you need to spend on pay-per-click in order to bring in these 10 customers in? If we continue with the example above and each customer brings in $200 of revenue per month but is a customer for an average of 5 years, 10 customers are worth $120,000!

If a modest pay-per-click budget of $2,000 is spent per month to bring in $120,000, the Return on Investment is 6,000%!!!

There is no magic number or ratio to get your desired ROI, but search marketing including SEO and PPC has the lowest cost per lead than other popular forms of advertising. A study by Piper Jaffray shows Search marketing had a rate of $0.45 per lead followed by email at $0.55, Yellowpages at $1.18, banner ads at $2.00 and Direct Mail an astounding $9.94 per lead.