The Magic Adword Profit Formula

How can you make an Adword make a profit? If you are like me then you thought that you were doing all of the right things but the result was always the same; the commission generated was never more than the cost of the Adword. In the words of Charles Dickens’ famous character Mr. McAwber, ‘Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery’

When it comes to Adwords, if the cost of the clicks is more than the commission that is generated then it is a sure fire loser!

So what is the magic formula for success?

In this instance, formula is the correct word, as it is a very simple balancing act that is required which is easiest to explain with an example..

Imagine that you are lucky enough to identify keywords that only cost you one cent each, $0.01. Your Adword is charged on a per click basis and so it will cost you $1 for every 100 clicks that you get. Each click will take the potential customer to the affiliate owner’s site, where they may or may not make a purchase.

The ratio of purchasers to non-purchasers is the conversion rate. If one person out of every hundred that clicks on your Adword actually makes a purchase, then your conversion rate is 1%.

The actual amount of commission that you earn is fixed and depends upon the affiliate program that you choose. For an example let’s assume that the commission is generated on a single sale is $20. Let’s also assume that you require a reasonable profit on each transaction for example 40%. This will provide you with $8 for every sale, and allow $12 to be spent on the Adword clicks.

For $12 you can pay for 1200 clicks if each click costs $0.01. That sounds a lot of clicks, but this is only true if the average Price Per Click (PPC) is $0.01. If the average PPC cost is actually 10c, then the number of clicks that can be purchased will be reduced to 120.

At 10c per click, you will require a conversion rate of 1 in 120 or 1.2% in order to maintain the same profit

So, in order to make a profit of at least $8, the affiliate commission must be $20 or more, the PPC must be 10c or less and the conversion rate must be 1.2% or more. In cash terms, for every $12 that you spend, Google will pay you $20.

The important point to notice is that if you double the commission rate then your profit doubles. If you halve the PPC cost then your profit will double. If you double the conversion rate then your profit will double.

There is only so much that you can do to lower the PPC cost and the commission rate is set by the affiliate owner. All that is left to manipulate is the conversion rate. If you are going to make a profit from Adwords then the conversion rate is what you must concentrate on.

The conversion rate is the key number! The critical thing is not to just get a lot of clicks on the Adword, but to make sure that those clicks are all potential buyers. This will depend on the choice of keywords associated to the Adword to begin with, but more importantly it depends on the subliminal expectation that is set by your Adword text.

Make sure that you choose an Adword text that works. The best advice is to check out any other Adwords for the same product. Type the affiliate name into Google and see what text is being used by others, particularly the top ones in the list.

If you can link the customer to your own page before sending them on to the actual ad, then you have a chance to pre-sell the product. This means that you can add a personal recommendation or something similar to encourage the potential purchaser. This is proven to raise conversion rates.

The choice of keyword is also important but requires a separate article all of its own.

It is possible to make a profit with Adwords, but you have to know the formula and make sure that all of the values when combined will equal a profit.