A Second Opinion

PPC Break-Even Bid Calculator for Service Businesses

Where does your PPC campaign red-line?

During the recession of 2009 I worked with a small business owner who owned a business that was struggling due to the economy and was losing money. Despite a declining number of customers we were able to make the business profitable again without sacrificing the quality of the service or product. Let me say that another way to be clear: During one of the worst economic climates in decades we improved profitability while also improving the quality of the service.

How did we do it? We focused on a small number of analytics we used for tracking the success of our Internet campaigns and expanded it business wide.There are 5 simple ratios that radically change your business when you focus on them. They are presented here as a simple tool to help you figure out the profitability of your Internet campaign; but don’t limit your use of this tool to just your Internet marketing. If you can move the needle on these metrics, even just a little bit, the cumulative effect could easily double your profits. And you won’t sacrifice a bit of quality. As I said, the quality of your service might actually improve. Here are the metrics we used:

Call conversion %: The % of people who see your ad that actually call. Easy to measure for the Internet, hard to measure for offline ads. Split test copy online and use the winning copy elements in your offline ads when possible.

Appointment Conversion %: Use a service to track your calls. Numbers are cheap enough now that you shouldn’t do any advertising without a unique number that allows you to track it. I’ve used Mongoose Metrics & Marchex and have been satisfied, but there are many that offer this service. Listen to the calls, cringe, and then retrain the person you have answering the phone.

Closing % – Good old fashioned sales training to increase the percentage of appointments or estimates that are turned into customers. Which can also help with the next important metric which is…

Avg Sale in $$ – To increase your average sale you could raise prices (tough to do in bad economy) or look for opportunities to offer complimentary products. As an example, if you build patios you might add retractable awnings to your line and increase your average sale. This obviously provides a big benefit to the customer as well. Big business refers to this as increasing wallet share. It’s great because you can increase profitability, while simultaneously providing more value and increasing customer satisfaction.

Gross Margin % - Gross Margin % = (Revenue – Costs associated with that revenue) / (Costs associated with that revenue).

Count only the costs associated with the sale, such as direct material and labor. Don’t include fixed costs, as you incur these no matter what. This way you can decide which advertising to keep or toss based on how well it covers the costs associated with the sales it generates.

Now what I am going to tell you next may seem like a bit of a magic trick but as you think more about it you’ll realize that this is not a trick at all. In fact, not understanding what I’m about to say will cause many businesses to fail in the future.

If you put numbers to each of the 5 metrics I just described and multiply them together, you will find a number that represents the most you should ever pay for a visitor to your site. This number is your Break Even for a single visitor from your Internet campaign. We call it the red-liner because if you bid above this number in a Pay Per Click Campaign you’ll be in the red. If you’re losing money on each sale you can’t make it up in volume.

In my experience selling pay per click advertising to small business owners, they invariably ask “How much should I bid?” They don’t have a frame of reference for answering that question. This tool provides that. But it provides something even more…

Let’s say that Google is your number 1 advertising source and that 2 years from now bids get so high that your campaign starts red-lining; this is going to be the reality for many businesses. What do you do?

The answer is in the formula. You’ll need to improve one or more of the above metrics for your business to survive. My recommendation is to start working on improving these metrics in your business now. The ones who do will have the ability to bid the most in Pay Per Click and secure the top spots, the ones who don’t may not survive the next few years as the average CPC (cost per click) in our campaigns rises on a near daily basis.

Here is a simple online tool to help you find your PPC Break-Even Bid Calculation in minutes.