Reverse engineer customer acquisition cost to define a profitable PPC keyword strategy.

As a PPC agency focusing on generating high quality leads for our clients, identifying profitable keywords that will generate great leads and a profitable ROI is paramount to our clients' success.

The TL;DR is to know as a business how much you're willing to pay for a new customer; use that to decide how much you should be paying for a lead; then use industry benchmark data to determine keywords that will cost less than the amount needed to generate enough leads to profitably acquire customers... ??

I'll explain...

Let's say you have a client in the mortgage industry and you want to use Google Ads to generate leads for them and ultimately help them acquire new mortgage clients....

First: we determine the lifetime value of our client's typical customer - then work with them to determine how much they're willing to pay to acquire 1 new customer.

This number varies from client-to-client and involves their business goals, profit margins, etc. For example's sake, let's say the most our client is willing to pay to acquire a new customer is $2,000.

Next: we determine our client's average lead-to-closing rate which will tell us how many leads we need to generate in order for the client to close one deal.

Let's say the client typically closes 10% of their leads so we need to generate 10 leads for every 1 new customer our client want's to generate.

So the most they can pay for a lead is $200 - now we have a target CPA

All we need to do now is reverse engineer one more step to figure out what our cost-per-click needs to be in order to generate enough leads at the target cost-per-lead of $200.

In order to do that, we need to know what conversion rate to expect based on the industry they operate in. How many clicks do they need to pay for in order to generate a lead???

To establish a baseline, we use PPC benchmark data to find the average conversion rate for whatever industry the client's business operates in.

For this example mortgage client operating in the finance industry, we can look at 2019 PPC benchmark data derived from WordStream which tells us the average conversion rate in the finance industry is 5% -- meaning 5% of Google Search Ad clicks turn into leads for a company in the financial industry.

Stay with me..

It will take 20 clicks to generate 1 lead..

20 (clicks) * 5% (industry standard conversion rate) = 1 (lead)

...so we'll need to find keywords that will cost less than or equal to $10 per click...

Why?

20 (the amount of clicks it takes to generate a lead) * $10 (cost per click) = $200 (the most the client is willing to pay for a lead based on their business goals)

Now we can [finally] do some keyword research!

The key here is to find keywords that are actionable, have good search volume, and will cost less than $10 per click for a top of page listing on the Google Search engine. Google's keyword planner tool (which I mention below) provides this information in the "estimated top of page bid" column.

Actionable keywords: favor bidding on keywords such as "refinance my mortgage" over a generic term like"mortgage" as the former suggests the user is likely to take an action that will lead to profit instead just doing research.

Search volume: check to make sure people are actually searching for the keyword.

I use a few tools to help me do keyword research when running Google Ads for clients including:

SpyFu: type in any website and see what keywords they're buying on Google. You can see all their organic keywords and how they've changed over the years. You can also see how a company started their Google Ads campaigns and how they changed their ad copy and keyword groups to squeeze out the highest conversion rates.

Google Keyword Planner: a free Google Ads tool for new or experienced advertisers that’s like a workshop for building new Search campaigns. You can use Keyword Planner to search for keywords and see how a list of keywords might perform. Keyword Planner can also help you choose competitive bids and budgets to use with your campaigns. 

Parting words...

When you find a keyword that's actionable, with good volume, and a CPC you can afford...create a single keyword ad group and tailor ad copy specifically for that keyword.

Doing this will yield a higher Quality Score by increasing your "ad relevance" which will in turn lower your cost-per-click and cost-per-lead across the board!

Happy PPC-ing!!!