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Sep 3rd, 2008 Comments: 1

The Math Of Internet Marketing (The Numbers Game)

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They say marketing is a numbers game, or perhaps a percentages game. And to a certain extent, that’s true.

It’s all about making a profit. That is, getting more money out than you put in.

There are two figures that are important: Conversion Rate and Return On Investment.

Google’s Adwords is an ideal practice ground for trying out these ideas. And after that it’s endless tweaking to try and improve the figures, until you reach that magical realization that you’re basically paying, say, .50c for every $1 you make.

And if I said I’d give you two dollars for every dollar you gave me, wouldn’t you give me every dollar you could possibly could? :-)

Here’s how a simplified process works, and the steps involved:

1. You have a website, that sells a product.
2. You have traffic coming to that website from ads you buy on Google.

Now you need those magical figures I mentioned earlier.

Conversion Rate

By tracking the visitors to your site, you discover that for every 100 people who visit you make 4 sales. That means you have a 4% conversion rate.

You know this from your sites stats. You see 100 hits to your site, and you see 4 hits to the order page. Or, perhaps you see 4 clicks to the order button – whatever works for you.

Because you are selling an eBook for $10, you know essentially your profit is $40 for every 100 visitors. So if you can get 100 visitors for less than $40, you’re in profit.

If you’re running an affiliate program the same principles apply. Instead of sending them to your own site, you can send them to the affiliate site, via your link. And because they pay a percentage per sale, you know you will make 50% of each $20 sale = $10. In effect, the same figures for our demonstration..

So now you need those visitors. Enter Google Adwords.

At Adwords, you discover various keywords for your product. To keep things simple, if unrealistic, we’re going to use one keyword. This keyword costs you $1 per click.

That means you can buy 40 clicks for your $40. Since you need 100 clicks to make $40, that’s obviously not good enough.

So we try another keyword. This one costs us 20c per click. That means you can get 200 clicks for $40. Good! By our calculations, that’s $80 worth of sales for 200 clicks. We have a four percent conversion rate, so 200 clicks = 8 sales = $80.

However, there’s another point we have to take account. Impressions vs Clicks. That’s the conversion rate for your ads themselves. Luckily Adwords only charge per click, NOT by impression. If you were using another method, for example paid advertising on Blogs where you pay per impression, you’d need to know those figures too.

As an example, an ad company charges $40 for 1000 impressions. If you were sending an e-mail ad, it may be to 1000 subscribers. You discover that for every 1000 times your ad is shown, you get 50 clicks to your site (or affiliate site). That’s a 5% conversion rate. Because our site converts at 4% (remember?) that means we get 2 sales: 1000 impressions = 50 clicks = 2 sales. So in the end it’s costing you $40 to make $20 – not good enough.

Time to tweak! If you can increase your ad coversion, by using better ads, you can get more clicks. If you can increase your sites conversion, by a better sales page, you can get more sales. If you can increase your product price or your affiliate percentage, you get more profit. That’s the numbers game.

And that, my friends, is marketing in a nutshell. Not as difficult as some make out!

Return On Investment

This is a catch all term that describes how much you make or lose for how much you put in.

For example, in our simple one man, one site demonstration we make a 100% ROI. We make $80 for every $40 we invest.

This term is also used for more general investments, for example, say you pay a copywriter to overhaul your sales copy, and it costs you $200.

This work means your site is now converting at 6% instead of 4%, so you are now making 12 sales per 200 clicks instead of 8. It means you make $120 per $40 you put in, instead of $80. Over a specific period of time, say a year, that’s many more sales. A high ROI for the $200 you paid that copywriter!

For more information on the subject of conversion rates please read Claud Hopkins seminal “Scientific Advertising” – available freely in our Instant Marketing Library and in our Members Site.

Comments

( 1 )
  1. neoblogger Sep 12th, 2008 3:47

    Wow! that was some real math game there. Its a real nice and a interesting read. I am sure it will do some good and I plan to apply it on my site.

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