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$10 Per Click - Do They Know Something We Don't?
by Neal Lebar ©Copyright 2003

I have utilized pay-per-click (PPC) advertising since its 
inception about two years ago. With PPC, the advertiser is only 
charged when a person actually clicks on their link. The amount 
you actually pay for each click is referred to as the 
cost-per-click (CPC). I've got to admit, I was pretty leery at 
first. But since then I've watched the price of certain search 
engine keywords skyrocket in excess of $10 per click! The big 
question isn't how much it costs per click but how many clicks 
does it take to get an acquisition. I've often asked myself, why 
would so many companies pay that much money for one single, 
measly, push of the index finger? The answer is simple - it just 
works! 

HOW TO JUSTIFY $10 PER CLICK 

The advent of PPC advertising has changed Internet marketing 
forever. It represents a free market in much the same way as 
eBay -- controlled by a natural supply and demand relationship. 
For a keyword phrase such as "debt consolidation," the top five 
advertisers are willing to pay cost-per-click charges of $10.01, 
$10.00, $9.99, $7.00, and $6.97. My first reaction was, something 
has to be wrong with this picture - it just can't be! So I looked 
at the "life insurance" phrase, where the top five range from 
$7.00 to $3.50. Then there are drugs like "Xenical" that range 
from $6.76 to $6.74. There are many more examples where the 
cost-per-click exceeds $6.00, $7.00, or $10.00, but you get the 
point. 

The fact of the matter is that while PPC advertising can work 
quite well - it can also be a flat out failure. When companies 
are willing to pay more than $5.00 per click, you can be pretty 
certain that they have figured out how to make it work - 
otherwise they wouldn't pay those prices. 

THE SELECT FEW 

I have seen many situations where PPC will work for one company 
but not for another in the same industry, using the same 
keywords. Large and small companies will venture in, bid for a 
week or two, and then drop out -- never to be heard from again. 
Some will come in, drive the prices way up then drop back out to 
obscurity. The select few who are successful have found the 
secret -- a combination of patience, determination, creativity, 
keyword selection, management and analysis. They do the math, 
every day - they manage the bids, every day - they look for new
keywords, every day - they analyze the results, every day. It 
takes a great deal of work to figure out how to make PPC
advertising deliver results, and the ones who have are now
benefiting - every day. 

WHAT IS THE COST OF AN ACQUISITION? 

In order to determine if your PPC advertising is justified, the 
first thing you need to understand is your current acquisition 
cost - what does it now cost to acquire a new customer or order? 
It's amazing how few companies know what their cost of 
acquisition is. To keep it simple, take your total advertising 
expenditures and divide it by the number of new acquisitions 
(orders or customers) - that should give you a rough estimate 
of your cost per acquisition. Similarly, after running a PPC 
campaign for a month, you take the total advertising expenditures 
divided by the number of acquisitions. Of course, these raw
numbers are not burdened by administrative costs, but they still 
provide an apples-versus-apples comparison. 

I have managed PPC campaigns where the average cost-per-click 
was $0.40 and others where it was $5.00. The key question 
remains: how many clicks does it take to get an acquisition? If 
the cost for each click is $0.40 and it takes 200 clicks for an 
acquisition, then the acquisition cost is $80.00. If the cost 
for each click is $5.00 and it takes 10 clicks, the cost of the 
acquisition is $50.00. 

FINDING THE GAPS 

Two key points are crucial: (1) how much does it cost to get an 
Internet acquisition compared to traditional methods? and (2) 
what is the value of a new customer? In some businesses a new 
customer is worth $1,000, while in others, only $10. Typically, 
the cost-per-click reflects this value, but since the market is 
still very small, there are significant gaps. Remember the 
"debt consolidation" keyword phrase above? The difference 
between the first and last cost-per-click was about 30%. On the 
other hand, there is literally no difference between 
cost-per-click rates for the keyword "Xenical". From this you 
may conclude that there is a lot more competition for "Xenical"
than there is for "debt consolidation". The opportunity is
between the gaps in the 30% differential example. 

The bidding market for keywords is still so new and untapped 
that it's rare to have more than three competitors fighting over 
a specific phrase. The gaps in keyword cost-per-click charges 
such as "debt consolidation" are the norm and represent 
tremendous opportunities still available in this media. Right 
now they are plentiful, and for those few people who take the 
time to understand this important marketing tool, the time to 
act is NOW! 

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Neal Lebar has proven that Internet marketing can generate returns 
far greater than traditional media. For more information, visit 
www.innovate-inc.com or e-mail nlebar@innovate-inc.com.
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