Setting realistic goals for your PPC accounts ultimately falls into two sections: Cost and Volume. Here's what you need to know in terms of these metrics...
Setting Cost Per Acquisition (CPA) targets for your PPC accounts: how aggressive should you be?
When it comes to marketing your business, we’re betting you’re not unlike the many others who want to see an instant ROI. This will be particularly true if you have invested in Pay Per Click, a digital marketing option that’s known for its potential to generate fast results and an ROI that’s simple to understand.
However, it is essential that you set well thought through Cost Per Acquisition (CPA) targets in order understand at what point you are making or losing money (and how aggressive you can be with your goals).
In industries where repeat purchases are the norm, the market leaders will often be looking at making a return on investment only after multiple purchases. By doing this, they can maximise profits or revenue by determining where their sweet spot is and understanding the price elasticity.
Companies that don’t have the data to forecast average lifetime value as accurately are at a distinct disadvantage, as they will either be taking a gamble, or looking for ROI earlier on which may limit their profitability.
So when it comes to setting CPA targets, how aggressive should you actually be? Here’s our advice for ensuring your goals are effective...
Work out your current Cost Per Acquisition
To do this, take the total spend of each channel and divide it by the number of sales made. If you can’t break this down by channel, then do a macro calculation of the total spend on marketing, divided by the number of sales you can attribute to marketing.
Work out your current average client value
It's time to get back to basics. What does a conversion mean to you? Is it enquiries? Direct sales from your website?
If it’s the latter you’re aiming for, then it’s easy to work out the average value. Just take the total sales profit, and divide this number by the number of sales orders you receive. You can then further break this down by the source of sale and/or product line.
If your conversions are sales enquires (with the sale still being a few steps away), you will need to work out how many enquiries it takes to achieve a sale. As with website sales, you should break this down by source if you can.
You may want to take this further if you are regionally based, and break this down based on factors including the distance from offices and the potential costs of sale. You can’t get too granular!
Work out your Target CPA(s)
Now you have your average client value and your current CPA. Hopefully the current CPA is much lower than the average client value!
So, how do you decide what your CPA target should be? This should be answered by your business objectives and cash flow position.
Firstly, is the objective profitability or growth of revenue and market share?
The two are definitely not mutually exclusive, but to maximise one, you may need to curtail the other. A high CPA target means you chance land more business, but it will mean a lower margin, and (as in point two) it needs to be sustainable.
Remember to keep in mind that when deciding how aggressive to be with your target CPAs, the product mix, or opportunities for cross-sale could have a major impact as well.
Secondly, how soon do you need to make a profit? Even if you know that 18 months from now the profit will be great, do you have the budget to wait for this? If not, then you may want to bring this sooner by having a lower CPA target.
Additionally, it's important to remember that the further out you forecast, the more factors that can change. Is there a technology or commercial change on the horizon? Can you forecast what this is accurately? Really?
Volume: The balance of margin and CPAs
Just like any other business, price elasticity comes into play online. If you are good value, you should sell well, if you are great value, you should sell even more!
If the product you are selling is commoditised and/or easily available from other distributors, then a slight change in price can mean the difference between a good CPA and a great one!
Make informed pricing decisions
Check out the competition. Remember to consider factors such as their product and service range, pricing, sales volume, and overall brand strength. Gather information from secondary sources, including competitors’ websites, brochures, advertisements, and annual reports.
If the market is very commercially transparent (for example, your competitors run Google Shopping campaigns), then you should make sure that you are competitive and articulate the value of your brand well.
If your sales process is extended past initial contact (with examples ranging from kitchens to pro services!) then you need to ensure your value is being built and tracked from the first interaction and maintained.
And finally, a few things to remember…
1. Track and quantify all of your channels. Compare them, but be aware of the multiplier impact one can have on the other. Attribution modelling can help with this, but it is not the full story.
2. Keep a record of any major price changes or events. Something as minor as schools being on half term can help explain big changes.
3. Be clear about your goals and what budgets you need to achieve them. Double check these (and them triple check them).