Is A Pay-Per-Click A Waste Of Money?

By Anthony Quinones

Pay-per-click (PPC) advertising is based on the concept you bid on keywords and you pay only when people click on your website using the keyword. This is considered the most cost-effective form of advertising. On the surface this idea makes sense. But does it? Despite the hype, I believe PPC doesn't work for most people. Here's why.

Let's check the numbers. The conversion rate is the number of sales divided by the number of clicks. The average conversion rate for most websites is between .5% and 1%. So let's take .75% as our conversion rate. This means that you need approximately 133 visitors per sale. Most PPC companies charge a minimum bid of 10 cents per keyword. To be seen more often you must pay a higher amount.

So let's take 15 cents as our average bid. You also have to take click fraud into account. According, to Click Forensics, an Austin, Texas-based click-fraud auditing firm, found that the click fraud rate for search engine ad networks alone, including Google AdSense and Yahoo! Publisher Network, is a whopping 28.3 percent. According to this data, nearly one out of every three clicks on a Google or Yahoo ad is fraudulent!

Search engines, like Yahoo! And Google, underestimate click fraud for obvious reasons. People want to avoid anything with high fraud attached to it. Also, admitting fraud means less money comes in from new customers and more money paid to current and past defrauded customers.

Now let's do the math to determine if PPC is right for you. Let's say that 1,000 visitors click on your site. Here's the formula:

1,000 clicks x 28.3% click fraud rate = 283 fraudulent clicks

which means

1,000 clicks - 283 fraudulent clicks = 717 legitimate clicks

717 legitimate clicks x .75% conversion rate = 5.4 conversions

1,000 clicks @ 15 cents per click = you pay $150 in PPC advertising

Whether the clicks are fraudulent or not, you still have to pay for them. Therefore, if you get 5.4 conversions per $150 in pay per click advertising ($150/5.4 conversions), this means that you have to make approximately $28 profit per sale to justify your PPC spending. This means that if you're selling something for $20, PPC is not for you. If you're selling something for $50 but it costs you $35 to make it, PPC is not for you. PPC only works if you can make a high profit per sale.

Based on these calculations, if you want to make PPC worth it, you have to either raise your conversion rate (which will increase the number of conversions) or lower your bid per click. The number of clicks is irrelevant. We are often told that using better, more defined keywords helps. This is debatable because most clickers won't buy from you right away.

When you read articles, magazines and websites it is almost universally professed that PPC advertising is the most cost-effective form of advertising. It makes perfectly logical sense. But upon further review, they don't take into account conversion rates and click fraud. I don't know if it's on purpose or not, but I do know that you must take these two things into account. Even if your website looks and is great, most clickers won't buy from you right away, anyway. So, when you consider that on average 28% of your advertising dollars are wasted due to fraud and that over 99% of your remaining 72% of your advertising dollars leads to no sales, this means that whatever sales you make have to count! And if the ones that buy don't make you a significant profit, then PPC advertising is not cost-effective for you. And for most, this is true. For more information, visit http://www.branditandmakeitso.com