It all boils down to this:
Only Advertise Where You Are Able To Calculate ROI.
We track each campaign individually with web analytics tools like google analytics (which is now open to everyone so you have no excuse for not having performance data).
Lets say that on average 1 in 100 visitors will purchase something on your site and that the average purchase is for $50.
The math is pretty simple:
1/100 = 1% conversion rate
$50 (avg purchase) * %1 = 50 cents.
This means that 50 cents per visitor is your break even point.
Of course, these are just averages.
In order to know if a specific campaign (or keyword) is actually profitable at a certain price point, you need to measure the actual behavior of visitors from that campaign.
Our main problem is that sometimes it takes a lot of traffic to measure the true effectiveness of a campaign.
Lets say that you have a keyword (or campaign) that has brought in 100 visitors but no sales yet.
Do I let it ride?
Do I stop?
It’s impossible to make a good decision at this point only based on the number of visitors and number of sales.
That’s why you need other performance metrics that can give you earlier indications of performance.
For us, we measure (among other things):
– bounce rate (abandonment rate)
– avg number of page views
– avg time on site
– email leads (signed up for our newsletter)
– viewed any product detail page
When you take a look at the above numbers for each campaign, you can quickly see if the campaign has the potential for being profitable without waiting for actual sales data.
Of course, you need to also take into account lifetime value of a customer, but that to can be factored in if you record the campaign that brought you the customer.
Hope that helps