July 16th, 2012Quality Score, CTR, conversion rate, – all are a means to an end. The end for all paid search is profit. If you know what your costs of good sold is and what your cost per conversion is, then add them together minus your revenue and you can determine what your profit is. The trick is figuring out what the optimal balance is between volume and cost per conversion.
The more willing you are to have a higher cost per conversion the more volume you will do and the more profit you will make. But at some point there is a diminishing return where the extra cost per conversion is not made up with the addition conversions it brings.
Below is a graph showing where the sweet spot is – where cost per conversion allows the optimal amount of volume.
If only paid search were as easy as deciding how much volume you want along with your desired cost per conversion. Unfortunately you can’t control how many people search using your keyword and of those how many click on your ad, but you can have this model in mind and constantly tweak bids in an effort to find the sweet spot.
Download the xlsx file I used to make the graph
Entry Filed under: PPC