Calculating Click Value and ROI Later

If you’re already in business and selling through your online store, you should have a closer
estimate of your conversion ratio. From there, you should be able to figure out the real
conversion ratio. It won’t necessarily be the same as the conversion ratio you’ll get from your PPC campaign; for many reasons the PPC conversion ratio could be higher or lower. But at least
you’ll have a real number to work with, rather than a pure guess.
How do you figure out your conversion ratio? Look at your web site statistics and find out
how many people visited your store over a particular period. For instance, choose your last
month of operations, and look for a statistic such as:
■ Unique Visits
■ Unique Visitors
■ Customers (an ambiguous term, but unfortunately the one used by Yahoo! Merchant
Solutions)

If you’re using Yahoo! Merchant Solutions, click the Reports link in the Statistics column and
look for the Customers statistic.

Once you know how many people have visited your store during that period, you need to
find out two more things:
■ The number of orders taken through the store
■ The average gross profit on each order
Now you can calculate your conversion ratio. To do so, divide the Number of Visitors by
the Number of Orders. For instance, if you had 1,538 visitors one month, and you processed 12
orders, your conversion ratio is 1:128. That is, you need 128 visitors in order to make one sale.
The average gross profit number, of course, allows you to figure out your breakeven click
value. For instance, let’s say:
■ The average gross profit on the orders is $35.
■ For every order you needed 128 visitors.
■ Thus, your breakeven click value is 27.34 cents. If you pay more than this for every
click, you’ll lose money.
This is still just an estimate, of course, because until you run a PPC campaign, you don’t
know if the conversion will be worse, the same, or better.
Once you actually run the PPC campaign, you can get exact numbers. You won’t care
so much about breakeven click value anymore because you’ll be able to see your ROI and
determine whether you’re making money. You’ll know just how much you’re spending for each
click, and you’ll also know your conversion ratio, under two conditions:
■ If you’re sure you’re getting all your site visits from PPC campaigns, then you know all
your sales are derived from PPC advertising and you can accurately calculate your ROI.
If you get traffic from various sources, though, you can’t do this, unless . . .
■ You install software that tracks sales from your PPC campaigns.