breakeven CPC: Why worry about it?
Simply put, there is not a lot of point in spending money on SEM or pay per click ads unless the products those visitors buy convert at a rate that is sufficient to reach a sustainable ROI target. The key input factors here are your conversion rate and your average order size.
Going into the Holiday’s is an important time to recalculate your breakeven CPCs keywords that drive sales of the long tail of products. Items that you never bid up on outside of the holidays may see a double or tripling of their conversion rate between Nov. 15th and Dec. 15th.
Here is a simple breakeven cost per click (”CPC”) model that provides a guide on what a company can set their initial bids up to based on product specific conversion rates and average order sizes.
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Example Break Even Cost Per Click Calculation |
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Inputs |
Values |
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SKU XYZ : Average Order Size |
$ 200 |
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SKU XYZ : Conversion Rate (SEM preferred) |
2.00% |
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Target SEM Ad Spend/Sales % |
10% |
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Calculations |
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Calculated Ad Spend at Target |
$ 20 |
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Number of Clicks Per Conversion |
50 |
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Break Even CPC at Ad Spend / Sales Target |
$ 0.40 |
Comments? Let me know your thoughts below. We’d all benefit by a good discussion.