One of the problems I have found in working with my SEO/SEM clients  - too often they have no idea what it costs to acquire a lead/sale/conversion. 

For my house plans clients were they to take a close look at what it costs to get a lead, they’d not do PPC at all.  It’s tough to compete online when there are so many competitors and your product maybe perceived by many as a commodity.  In fact, the key is to have your product not be a commodity - but in order to do that you need to focus more on Branding and Up Selling (adding value to your searchers’ experience of your site).

Here’s an example from the PPC area.

"To investigate the current state of ROI in the retail space, I obtained conversion rates for three retail-related verticals (data from Fireclick). Then I selected a set of ten broad keywords for each vertical and checked their maximum bid prices in Yahoo!. I took an average of these bids (throwing out a couple that seemed irrationally high) and used the average conversion rate to come up with a cost per conversion that the bidder in the first position is willing to pay. The results for each vertical’s cost per conversion are listed below:

-Fashion Apparel - $26.89
-Electronics - $48.14
-Outdoor/Sporting Goods - $79.11

Duh!!! 79 bucks to sell a set of golf balls!   1500 bucks to sell a 500 dollar house plan!?

That’s right ….. it’s true. 

"Eye popping, eh? How many golf balls would you need to sell to afford $79.11 in PPC costs alone, never mind shipping, handling, the cost of goods, etc.?

The intention of this little exercise is to demonstrate that retail is a tough market in paid search. If you’re just jumping in, you’re swimming with sharks. However, I don’t believe that the bidders in position one on the sporting goods keywords are actually paying that much for a conversion. Rather, I believe that they are doing a much better than average job of running their paid search efforts. Following are the factors that can help you mimic their success

The ADOTAS article goes on to tell you what you need to do to make PPC profitable to run.

"Refine Your Ad Copy

One of the core elements of your paid search campaign is the actual messaging of the ad. The measure of its success is click through rate (CTR). A high CTR will mean more visitors to your site and can actually decrease the cost of each click. There are some general guidelines to developing ad copy and the engines are more than happy to disclose these. However, the bidders in the first position have likely undertaken a rigorous program of creative testing and you should too.

You’ll often conduct a search and discover that most of the top bidders have ad copy that looks virtually identical. They are all following the general guidelines, but they aren’t differentiating themselves. You wouldn’t generally run advertisements offline that are identical to your competitors because you’re not giving the consumer any reason to come to your particular store. The same is true online. Test different offers, promotions, and language to find ad copy that resonates with the user and differentiates you from your competition.

Leverage Your Brand

There is considerable debate on this point, but I believe it is usually advisable to bid on your branded keywords. Aside from the fact that others will if you don’t, it also helps you make more money. Branded keywords tend to have a very low cost per conversion and you can use the money saved on those to fund more expensive conversions on non-branded keywords so long as the average is acceptable overall. Doing this sort of global or portfolio-based optimization almost universally produces greater overall revenue than other forms of optimization.

Now the opposing view is that you could just separate the branded keywords and have a higher profit margin. While that’s true, I think there are two distinct benefits to globally optimizing. The first is that it allows you to bid on more non-branded keywords in higher positions. This helps you capture the attention of more users who aren’t already looking for your brand, expanding your customer base and depriving your competitors of those customers. The second benefit is that you gain the lifetime value of that customer who comes on non-branded phrases. On a keyword level, you may have lost money on that first acquisition, but you stand to make it up in the long run.

Pay Attention to Your Inventory

Paid search campaigns for retail products are some of the most difficult campaigns to run because of inventory issues. If you direct all your visitors to high level landing pages, you don’t have to worry about sending them to product level pages that contain out of stock items.

On one hand this is great because nothing kills a conversion rate like being out of inventory for a product the visitor wanted, but on the other hand, you give up the higher conversion rates by delivering the user to a higher level page, and not one that contains the specific product being sought. Thus, a well run paid search campaign for retailers usually involves a balancing act of constantly pushing new landing pages up and pulling others down. This is difficult, but it is the right way to run a retail campaign, and you should take the time and effort to develop a process that makes this possible.

Test Your Landing Pages

The main factors affecting your ability to bid high in the paid search auctions are your profit per sale and your site conversion rate. Because the first is dictated by the economics of your business, you can primarily change this equation by improving your conversion rate. You should direct plenty of effort to improving the total user experience and conversion process on your site, but the first place to start is the landing page. There are well-developed systems and methods of testing and improving landing pages. Put such a process in place and test relentlessly to improve the conversion rates on your site.

Follow these suggestions and you improve your chances of success in the cutthroat, swimming-with-the-sharks online retail marketplace.

If look at it, it takes a professional approach to really do PPC right - and it probably differers somewhat depending on what vertical your advertising in.