Budgeting for Adwords Leads

I have blogged about this breaking Adwords campaigns up before, but recent events merit revisiting this approach to PPC management. While employed as a in-house marketing manager, I was faced running campaigns that included some very high-cost phrases (in excess of $10). This select group of phrases appeared to be the only words that were converting. We measured demos, and trips to the contact page as conversions. We received conversions only once out of eight or nine clicks (at $10/click a conversion cost $80 to $90). Moreover at $10/click, I was quickly exhausting my daily budget for few paltry conversions. This was clearly a chicken and egg scenario, I needed leads to get sales, but I needed sales to pay for generating leads.

A typical sale was between $2,500 and $5,000. When you divided new sales revenue by leads over the span of a year, we had an average revenue of $1000/lead. So I felt paying up to $100/lead was reasonable.  However, we had a sales cycle of 3 to 6 months and since every lead doesn’t close, I needed to temper my enthusiasm for getting new leads with the realities of cash flow.

My first thought was to separate my AdWords campaigns by keyword cost, dividing words into producing and non-producing campaigns. This way I thought I could focus my ad dollars on these high-dollar phrases where they were producing the highest number of leads.

Then something unexpected happened. Prior to dividing my campaigns up, my high-dollar, high-conversion words had been consuming each days ad spend. After placing high-dollar phrases in a standalone campaign with its own budget, lower cost words were able to run for longer periods. Statistics emerged showing that while the lower-cost ($3.50/click) phrases converted at a lower rate, the cost per conversion was half the cost of the high-dollar phrases.

As a result of this exercise, we abandoned the high-cost phrases, reduced our ad spend by half, while increasing our exposure and maintaining constant flow of leads.

I now believe you need to take this a step further and separate campaigns into high, medium, and low (or exposure) campaigns.

High and Medium campaigns are those which convert to leads at a solid rate. Here, you have to look closely at your cost per lead (annual new sales revenue/leads) and your cash flow to determine what you can afford to pay. Phrases whose cost start moving into stratosphere can be abandoned or throttled in separate campaigns so they don’t exhaust ad budgets prematurely.

The low-cost campaigns provide exposure and build name recognition in exchange for an occasional lead. If phrases in this group become performers be sure to move them in to higher performing campaigns to be sure they have adequate budgets for them perform. These low-cost/ exposure campaigns may also include words that have become too expensive to keep within the top 5 positions on the first page, but might continue to provide exposure and even an occasional click from lower positions or even second page results.

So what position should you shoot for? While I like to stay above the fold in position 3-5, there is certainly and argument to settle for an occasional click with a lower cost from a lower position. – but again, I think it all comes down to cost per conversion and what you can afford to pay for a lead.

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