When it comes to our daily tasks as PPC account managers we have a plethora of tactics to choose from at any given time. If the goal is profit maximization, what’s the ideal way to determine the priority of tactics to spend time and resources on?
What follows are essential tips to best choose which strategies to zero in on to continually improve the success rate of your campaigns. This will also help weed out the tactics that could work well in theory, but might amount to only small gains despite a large time investment.
Your two new best friends here are Excel and the Pareto principle, also known as the 80-20 rule. Using Excel to model how the different tactics could influence profit from paid search, we’ll then identify the tactics that would yield 80 percent of all available profits with only 20 percent of the efforts.
With this simple exercise that takes no more than an hour, you can best channel your time and energy toward big wins.
Things you’ll need: Some Excel knowledge and some basic math skills.
Step 1: Identify Your List of Opportunities
This could be your list of proposed tactics and strategies you could be working on. Compile your list of optimizations that you could effect on your campaign, keeping your big goal in mind.
In the case of this example, we’ll focus on the following four sample tactics that tie into the bigger goal of maximizing profits from Google’s Display Network:
- Reduce Cost Per Click (CPC)
- Increase Click-Through Rate (CTR)
- Increase Conversion Rate (CR)
- Increase Impressions
Any of these tactics alone could help. But which one (or more) should you focus on first? Which one will yield the biggest gains the fastest? We’ll start prioritizing shortly.
Step 2: List the Assumptions for Each Opportunity
In paid search, things rarely work in a vacuum. Make changes to one metric and there will be additional changes happening in other areas of the account. For example, if we lower bids, then we could see impressions fall too. Thus, for each opportunity you have outlined, list the potential “side-effects” as well.
For the sample tactics listed above, the assumptions (slightly simplified for illustration purposes here) are as follows:
- Reduce CPC by 40 percent; assume 30 percent decline in impressions.
- Increase CTR by 20 percent; assume 5 percent decrease in CPCs.
- Increase CR by 20 percent; this will result in lower CPAs.
- Increase Impressions by 20 percent; assume 10 percent increase in CPCs.
This is by far the most critical step since these assumptions will be required for building the Excel model.
Step 3: Create the Base of the Excel Prioritization Model
First, plug in all your control metrics – i.e., impressions, clicks, conversion rate, CPCs and your average order value (AOV) or customer lifetime value (LTV) – for performance as it is now. Take the past 30 days as the sample size, so you can compare the monthly increase in profits you could generate. It may look like this:
Important: Ensure that you use calculations here to calculate the KPIs, since they will be needed during the next step.
Calculations used here:
- CTR: Clicks divided by Impressions and set as a percentage within Excel
- Orders: Clicks multiplied by CR
- Media Cost: Clicks multiplied by CPC
- CPA: Media Cost divided by Orders
- Profit per customer: Take your Average order value or your lifetime value, whichever you use to calculate profits, and then minus CPA
- Profit: Profit per customer multiplied by total orders
This will serve as the basis on which to gauge improvement and prioritize the proposed tactics.
Step 4: Add in the New Opportunities
On the Excel spreadsheet, simply copy and paste into new rows the above control metrics for as many opportunities as you want to prioritize. So for our example, which has four proposed tactics, the control will be duplicated four times. It’s truly a quick copy and paste and will copy in all the formulas from above.
Then, add in additional sections to show the:
- Estimated difference from base in terms of profits.
- Estimated time it will take to employ the tactics to see a difference.
- Costs and resources estimated.
- Degree of risk involved (how likely is the manifestation of the assumptions?).
Next, using simple Excel math calculations, plug in the assumptions for each opportunity to see how it could affect profit.
Here, since CPC was being reduced by 40 percent, multiply the CPC number by 0.6 to factor in that decrease. Do a similar calculation for the impression decline. With the rest of the calculations in place, it will automatically calculate the profitability of this tactic.
- Multiply base CPC by 0.6
- Multiply base impressions by 0.7
Here, despite this being quick to achieve, the calculations show that this tactic might not be the best way to go since it will actually result in a decline in profits.
- Multiply base CTR by 1.2
- Multiply base CPC by 0.95
From this exercise, we see that while this may take longer to execute, and would need a testing budget, this tactic could see a pretty big lift in profits over the base.
- Multiply base CR by 1.2
This higher risk opportunity presents the largest opportunity we could have for impacting profits within just a handful of weeks of testing. The large profit opportunity size would definitely justify the investment of testing costs and resources.
- Multiply base impressions by 1.2
- Multiply base CPC by 1.1
This last example opportunity is extremely quick to execute and low risk, though its profit yield is slightly lower than the other opportunities presented.
Step 5: Prioritizing for Maximum Success
Now that all the opportunities are laid out in Excel, it’s time to rank them based on opportunity size, speed to achieve and risk factors. The goal is to identify the big opportunities that are the fastest to achieve and have the least degree of risk.
For example, looking at Tactic 4, upping the maximum CPA bid by 10 percent in AdWords is very quick, is fairly low-risk, and could yield high rewards; thus it would be smart to act on this first.
On the other hand, while it is the biggest opportunity, improving conversion rates would take rounds of testing and media budget and would need design and IT resources to create the test pages. Thus, the impression volume optimization would go first on the list, and conversion rate optimizations would go below that.
Weighing in all the factors and running this exercise would determine that the priorities would be as follows:
- Tackle Opportunity 4: Increase impression volume
- Work on improving conversion rates
- Work on improving CTR for the ads
- Eliminate the CPC reduction tactic, as it is unlikely to work
- Plan for a total of $10,000 in testing budget and also sufficiently plan for and allocate design and IT resources to the project.
Embark on this quick exercise at the start of each month to maximize your chances of success and save yourself last minute stress and anxiety.