The benefit of pay-per-click advertising is that it brings traffic to your website immediately. That is a powerful tool. The alternative way of bringing traffic to your site is to focus on the organic search results, positioning your website to rank highly in the search results for your business's important keywords. The latter is referred to as Search Engine Optimization or SEO. It too is powerful, but also time consuming and much more complex. With SEO, you will see results over time. With PPC you will see results immediately. But PPC is not cost effective for every business.



Conversion rates on PPC advertising are typically very low, usually less than 2 percent. While there are some businesses that enjoy higher conversions, most fall in this range. Your conversion rate is the percentage of people who will make a purchase after clicking through to your website in a PPC advertising campaign. If you have a 2 percent conversion rate, that means that for every 50 people who click on your keyword to your website, 1 person will make a purchase. More typical, a 0.5 percent conversion rate means that for every 200 people who click through to your site, 1 will make a purchase.

If you are just starting out, you don't have any data specific to your website. Instead, you will have to make an educated (conservative) guess. As you build experience with a PPC campaign, you will be able to replace that guess with real data from your site, but for now you'll have to use the general norms. To provide you with a realistic example of the cost effectiveness of a PPC program, we will use a 0.5 conversion rate. There are 2 other figures you will need to know to begin to determine if PPC works for you: your breakeven cost per sale and your break even cost per click.

The break even cost per sale is straightforward and likely a number you work with all the time, also known as your margin or gross profit. To determine your margin, you simply subtract the total cost for the sale from the total revenue for the sale. For our example, let's say we are selling gourmet gift baskets and the total revenue is $72.78 (this includes the price of the product, $64.22, as well as the charge for shipping, $8.56). The total cost for this sale is the cost of shipping ($8.56) plus the wholesale cost of the product ($32.10), or $40.66. Subtracting the cost of the sale from the revenue for the sale, you get $32.12.

You have now calculated the gross profit per sale. This means that if you spend $32.12 in PPC advertising for this sale you will break even. If you spend less than that, you will make money on this sale. To determine the break even cost per click, you will multiply the breakeven cost per sale by your conversion rate. In our example this is $32.12 X 0.5=16.06 cents per click. This is the most you can pay per click without losing money. At $16.06 cents, you will break even.

Now you are equipped to make smart decisions about your pay-per-click campaign. Careful keyword research will tell you what the cost of keywords will be per click and what kind of traffic you can expect based on that key word. In our example, with only $0.16 per click to work with, it is not likely that you will be able to afford the most competitive keywords. Google's traffic estimate tells us, for example, that the cost of using "gift baskets," the most competitive keyword for this market, would be $2.39 - 3.28 per click, considerably more than we can afford. Researching related key words and "long tail" keywords (longer, more specific search terms) will be the smarter approach.

Google, MSN and Yahoo have the best known pay-per-click advertising programs and generate over 90 percent of search traffic, but there are other alternatives known as second or third tier programs. These PPC programs, such as ePilot and Searchfeed use large partner networks to place their ads, often using content sites. They get enough combined traffic from their network to generate substantial traffic for a PPC program. And, they are much less expensive. Some businesses simply can't afford to use the big three; the cost per click is just too high. In these cases, in addition to thorough keyword research, the smarter choice is to consider these lower tier programs. Equipped now with this data regarding cost per click for your product sales, your research will yield potentially affordable options and help you determine if PPC advertising is the best approach to advertising your business.