from Adapt Technologies:
Do you know your CPA (cost per acquisition) for the different marketing efforts used to drive traffic to your site? An acquisition is the completion of any defined action on your Web site. The action can be a purchase from your site, a signup to your newsletter, an info request (e.g. lead), or any other action you wish to measure. CPA is calculated by taking the total cost of a given marketing campaign, and dividing that by the total number of actions that resulted from that marketing campaign.
Example for fake home loan company:
Google Mortgage Lead Campaign Costs, November: $5680
Total number of rate quote requests (acquisitions), November: 280
Cost per acquisition: $20.28
In search marketing, one way to optimize bids in a paid search marketing campaign is to ensure that it stays below a given CPA. Since paid search is pretty much 100% trackable down to the keyword level, you use the CPA target to determine how to adjust a per-click keyword bid.
From a very high level, the strategy for per-keyword CPA bidding is, you simply divide how many actions resulted from the clicks on a given keyword into the total click costs generated by that keyword. If that amount is higher than your target CPA, you should adjust your keyword bid down. If it is lower, you have a well-performing keyword and could possibly afford to bid up to shoot for a higher ad ranking on that keyword.
If you don't already know your CPA, you can also derive a target CPA by dividing your "goal" number of acquisitions by the actual budget that you have to spend.
Example for fake CRM software company:
Yahoo! Budget for January: $10,000
Desired number of online demos requested (acquisitions) in January: 750
Target cost per acquisition: $13.33
Two caveats here...
First, your target CPA if derived from the formula above, may be unrealistic based on the whims of your keyword marketplace's actual costs. You may find that you are bidding to one target CPA, but the actual keyword costs may result in your needing to bid so low that you are getting a very low ranking and thus no volume. It is often best to start with a certain budget and just watch your campaign for a minimum of 2 weeks to establish an actual CPA and not one just based on the very simple formula I described. From the actual observed CPA, you may then target a 5-10% reduction as your goal.
Second, it is very important to note that effective search marketing management goes beyond basic bid optimization. Many other factors influence the success of a paid search keyword campaign, and you should not just focus on bid management alone. Ad text and landing pages also influence the effectiveness of paid search.
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