It’s a story I’ve seen one too many times. A skilled marketer comes to Capterra enthusiastic about generating leads through our pay per click program only to realize that they’re not ready to place a bid. Their website is optimized, the budget is approved and they know Capterra would be a great fit; the stalling point is that burning question: “how much should I bid?”
To help save the rest of you from the awkward silence when asked if you’ve run the numbers to calculate your bid prices, I’ve created this handy guide for you. This simple equation is all you need to make a smart decision. You can use the Excel template at the bottom of this post.
Many marketers look at what their top competitors are bidding and aim to beat out their bid. Others set their sights on the number one spot and want to be there no matter what. Number one is a great place to be… but not if it’s losing you money. Multiply the numbers first:
- Average Revenue per Customer (ARC): How much is an average customer’s revenue over the span of your relationship?
- Acquisition Cost Percentage (ACG): What percentage of the ARC you are willing to spend on acquiring new customers?
- Close Rate (CLR): What percentage of sales leads become customers?
- Conversion Rate (CR): What percent of clicks to your website convert into sales leads?
ARC x ACG x CLR x CR = Maximum Bid Price
Let’s do an example. Company Z averages $3,000 per year per customer and their average lifetime is three years totaling their ARC at $9,000. They spend 10% of their sales revenue to acquire new customers. Their sales team is closing 15% of their leads and their website is doing a really good job at converting 8% of their click traffic into leads. Let’s run the numbers:
$9,000 x .10 x .15 x .08 = $10.80/click
This doesn’t mean that Company Z has to spend $10.80/click on all of their campaigns, but now they can make decisions on their bid prices knowing that $10.80/click is their max.
The two parts of this equation that are easiest to control are the Acquisition Cost Percentage and Conversion Rate. We’ll cover improving your CR next month. But how much should your company spend to get new customers? I’ve seen everything from a conservative 5% all the way up to 50%. Average is 10%, but make sure your spending budget is in line with your company’s goals.
Need help calculating your conversion rate or have specific questions? Feel free to email me and we can walk through it together.
Here is your Excel template to calculate your own bid: Capterra’s Guide to Calculate Your PPC Bid