It’s the question that everyone’s asking – especially those who are totally new to PPC: Can PPC be profitable?
It might seem like a really silly question to those already involved in PPC, but when you consider that some keywords cost upwards of $10 per click, and conversion rates are very low, it’s a question that’s well worth asking.
In this article we’re going to look at two examples – one where despite a high cost per click (CPC), PPC can be very profitable. The other example will look at a niche where there’s a relatively low CPC, but making a PPC campaign profitable can be extremely difficult indeed.
Example 1 – Car Insurance
The first example we’ll look at is car insurance.
At the time of writing the average CPC for this keyword is a little over $10.
That means if you advertise on the Google AdWords search network and someone clicks your ad for car insurance, you pay $10, regardless of whether that person “converts” into a sale or not.
Conversion rates on insurance based keywords are relatively low due to the amount of competition out there.
Remember people are always being told to shop around for insurance – this is why bounce rates are high.
So let’s say that the keyword “car insurance” has a 5% conversion rate – that means that only one in every 20 people who click through are going to “convert” into a sale.
That means for each sale made, the advertiser has paid over $200.
Of course this looks like an obscenely high figure for people on the outside, but car insurance policies come with a large mark-up for brokers, so it’s still possible for this to be profitable.
Another thing to bear in mind is that people tend to stick with the same insurance company for many years – meaning that the $200 spent to bring that customer on-board should guarantee repeat business in the years to come.
So, although expensive, it’s possible for PPC to be profitable in the car insurance niche.
Example 2 – Lipstick
The second example we’re going to look at it is for the keyword “lipstick” – which at the time of writing comes with a CPC of around $1.70.
Now, let’s say the average lipstick costs around $8 – with 50% of that being a profit margin after shipping and taxes.
That means there’s $4 profit to be made on each transaction – but don’t forget that when the conversion rate is factored in, profit will slide dramatically.
If the conversion rate is around 20% (which is a little optimistic), it means that each sale will have cost $8.50 – which means that the seller is effectively having a $6.50 loss on each item.
The only way to combat such a high CPC is to offset PPC traffic with SEO and social media traffic, or entice users to purchase up-sells, so that they spend as much money as possible on your site.
It’s clear that keywords with a huge CPC can still be very profitable – some people assume that expensive keywords are the least profitable.
This couldn’t be further from the truth – often it’s the least expensive keywords that are the hardest for sellers to see a return on.