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.
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!