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PPC Ad Position Vs Conversion Rate And Cost

PPC Ad Position Vs Conversion Rate And Cost

I have been asked the same question by a number of my clients; I do find it difficult explaining this at times without sending through a mathematical formula. I decided to write this into an email, and now a blog post. It is a simple concept once you can get your head around it.

A lot of testing has been done by Google and online marketing agencies to verify whether ad position actually affects the conversion rate of a site. It has been proven that the conversion rate varies less than 5% across the 11 ad positions available – which is very low considering the variation in pricing for certain keywords.

http://adwords.blogspot.com/2009/08/conversion-rates-dont-vary-much-with-ad.html

Now to the guts of the post! You sell $200 Widgets online, with a 100% profit margin – You need to make the cost per aqusition less than $75 to make the exercise viable.

If you have $5 to spend per day, top position costs $2.50, second position costs $1 and 3rd position costs $0.50.

Budget: $5.00 per day.
1st position = $2.50 per click.
2nd position = $1.00 per click.
3rd position = $0.50 per click.

1st position = 2 clicks per day.
2nd position = 5 clicks per day.
3rd position = 10 click per day.

Research supports that there is a variance of 5% across all of the 11 ad positions, so:

1st position = 2 clicks per day / Conversion rate 1% = 0.04 Conversions/day * 30 (month) = 0.6 conversions per month for a $5 daily budget – $150 Monthly Budget – In order to make a sale you need $250 to spend – not viable.

2nd position = 5 clicks per day / Conversion rate 0.99% = 0.095 Conversions/day * 30 (month) = 1.485 conversions per month for a $5 daily budget – $150 Monthly Budget – In order to make a sale you need $101 to spend – not viable.

3rd position = 10 click per day / Conversion rate .98% = .098 Conversions/day * 30 (month) = 2.94 conversions per month for a $5 daily budget – $150 Monthly Budget – In order to make a sale you need $51 to spend.

Viable – $49 profit per sale – (ROI 49%) Wooo Hooo! In theory for every $1 you spend you will get a return of $1.49.

What this means is, if the PPC campaign objectives is conversion or sales orientated having a lower ad position actually provided a better ROI, than a higher position.

Placing an ad in the top positions is really only good for a branding exercise. I have noticed that it is common to think that being number 1 for PPC ads are the best position – but nothing could be further from the truth!

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2 Comments
  • Posted at 3:08 am, March 4, 2011

    Ohhhh such a good point about ad position. Likewise, the statistics you end up with from your first $20 spending, is NOT scalable. IE Adding another $20 will not produce the same statistics as the first $20. Pick you daily budget and stick to it for a solid 2-4wks to get reliable data.

  • Posted at 1:56 pm, March 4, 2011

    I agree, but I wouldn’t base the data on a time frame. I would only base the data on the amount of clicks produced to make an informed decision, or of course impressions.

    If you are in a very niche industry, you might only get 10 clicks a week. If so, over the period of 1 month you only have the data for 40 clicks, which really isn’t that much.

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