Are you familiar with the PPC equation? This video will cover a little-known metric that few people talk about regarding PPC. But I find it highly important. Also, I want to explain and give you a complete picture of how traffic works, both from a Traffic and Conversion standpoint. Many people look at PPC, and they’re just pushing and launching campaigns, etc.
But, there are some metrics that they’re not observing. We can break down the entire funnel into specific metrics. If you work on improving every single metric, you’ll notice a benefit and an increase in profits all around. And it’s just by focusing on these little pieces and improving every single one. When we run PPC, what happens is, we’re getting impressions, showing our ads in different places, and trying to get as many impressions as possible.
PPC Equation Explained
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So, in this case, we’re going to say that we’re spending $10,000 and getting a million impressions. Let’s say $10,000 will bring us a million impressions a month, with a click-through rate of 0.2%. And that’s the metric I want to focus on.
Based on that, if you have a million impressions and get to that 0.2% click-through rate, we’re going to get 2000 clicks. Assuming that 30% of the clicks are sessions, for every single person, if they click on three different ads, we will get about 667 sessions. With the 20% conversion rate, we’re going to get 133 sales. Last, if our product is $30, we’re going to get $4,000 in sales.
3 PPC Equation Levers
Now, why do I do this? Many people are focusing on PPC without understanding the complete picture of how things are flowing. So we have three levers here that we can pull. The first lever is spending; we can spend more efficiently. The second lever is the click-through rate. We can pull it by focusing on keywords, improving our listing, our price coupons, and getting a better click-through rate. And then, the third lever that we can pull is our conversion rate.
Click-Through Rate
So let’s assume that you took your $10,000 to spend, which will drive you a million impressions. Also, you focused on isolating keywords that will deliver a 0.4% click-through rate instead of 0.2%. The other option is improving your main image, price, views, adding a coupon, etc. You can make your image more appealing so that more people click on it. If we went from 0.2 to 0.4%, we just went from $4,000 in sales to $8,000 in sales. Going from 0.2 to 0.4% click-through rate is not as if you’re increasing your conversion rate from 20 to 30%. Right, all you’re doing is increasing 0.2% on your click-through rate!
Optimization
Now, let’s say that the other side of PPC is to focus on optimization for the same million impressions. You started adding negative keywords for keywords that are spending too much in Auto Broad and Phrase.
Let’s say that you also optimized the bids. So you lowered them anywhere where you had a high ACoS, and for anything that was getting clicks and no sales, you reduced the bid or turned those off.
What would happen is for the same million impressions, assuming that you’re launching more profitable campaigns and cutting down on the not-so-profitable campaigns, you can cut down $2,000 a month in spending. You end up in a situation where, for the same number of impressions, you’re spending $2,000 less. Because you had a higher click-through rate, you made double the money for the same amount of spending.
Now obviously, this doesn’t seem like it’s going to make sense math-wise since you’re getting $8,000 in PPC sales and $8,000 in PPC spend. Now that you can see this, you can also understand where your numbers need to be. Many people will come to me, and if their metrics aren’t there, we can’t make the account work.
Conversion Rate
In this case, if we increase the conversion rate to 30%, you’re making $12,000 in PPC sales by spending $8,000. So if you get another $6,000 in organic sales, it makes sense. After ads, your net is $10,000, and let’s say half of that goes to your cost of goods and Amazon fees. You will have at least a couple of $1,000 in profit, and you now have a PPC equation that works.
Many people do not thoroughly look at this PPC equation. You should create this equation as soon as you start selling on Amazon. Do it as soon as you’re running PPC. Look at every piece, and see what you can improve.
Cost Per Session
Another metric that I like to see here is the cost per session. If we say it is equal to the PPC spend divided by the number of sessions, we have a $6 cost per session. It means that for every single session we’re getting, we’re spending $6. Now, you might tell me you don’t know if the sessions you are getting are organic or paid, and I get it.
But because PPC is so intertwined with organic, we cannot start saying that organic is causing one thing, and PPC is causing another thing. Instead, we have to look at our entire account. If you can improve your sessions through organic ranking, you should do so. Also, improve it through PPC because you’re trying to use every single tool. It’s not a competition to say organic or PPC is better.
You have to use and improve both! But once you see and know this PPC equation, you can look where you can improve things. Look at your click-through rate and conversion rate, and try to improve them.
PPC Equation & Sessions
Also, check your session percentage. We can always look at the number of clicks on the ad account and the number of sessions in our business reports. So in this example, for 4000 clicks, we have 1333 sessions. But maybe we have video campaigns and Sponsor Display running at the same time.
People click on multiple spots when you have the paid search–Sponsored Products advertising, Sponsored Display video. So you’re getting multiple clicks with the same amount of sessions. If we wanted to improve that and increase the number of sessions or decrease the number of clicks to lower our spending, we might not show up for so many different placements.
Maybe if you’re not showing on page one for that keyword, perhaps you can show up on page one for that keyword for video. In that case, you’re gaining new sessions instead of just spending more money for the same amount of sessions. Conversion rate is another one, and then again, cost per session. To get a more profitable cost per session, you can optimize your PPC spend through the negatives and all the things mentioned above.
Conclusion
To conclude, if you can follow this PPC equation, you can understand your sales. You will know what your numbers will be and have a realistic view of what will work.
If the money you’re spending is more than the money coming in, think about how you can shift the equation. What are the different pieces that you can control? As I mentioned before, you have a click-through rate, a conversion rate, and then you have the cost per session. Optimize it to get the lowest cost per session possible. Follow the tips and tricks from this blog/video to make the most of your PPC advertising!
About the author
Mina Elias is a multiple-seven-figure seller in the supplement industry, investor, Amazon PPC expert, and founder of Trivium Group, an Amazon Advertising agency. Mina excels at developing cutting-edge supplements for different target audiences and combines his passion for supplements, his background in chemical engineering and chemistry, and his expertise in PPC to crush the competition on Amazon. His goal is to change the way people perceive Amazon PPC and empower them to take back control and dominate their ads.
