The following story is a true, cautionary tale about a business using AdWords (though some details have been changed to protect the guilty).
It’s about a biz that hired a PPC management company… but they never should have used Google AdWords in the first place. For reasons we’ll get into in a minute.
But one important point to make at the top here… there are companies in the exact same niche as the one this biz was in that can make the AdWords math work for them.
So, here’s the story…
The business in question was selling a product using AdWords marketing. It was a type of insect repellent we’ll call Bug Off.
In reality, there was nothing really unique about Bug Off. The biz has no big, bold claims about how their product squashes the competition.
The primary thing they talk about is that Bug Off is made of non-toxic materials and is completely biodegradable.
And what that’s great and all, there’s tons of other insect repellents that make similar claims.
Which is problem number one here.
There’s no Unique Selling Proposition. Bug Off has no secret sauce. Nothing makes it stand out from the competition.
Which is a tough position for any business to be in.
Now, that said, the company is moving some product. Some through small retail stores and some through an ecommerce store they partner with.
The rest (or so they thought) were coming through Google AdWords.
Again, they had hired a PPC management company but weren’t happy with how things were going so they came to me for PPC help.
They wanted me to manage things for them but I said no.
For a few reasons…
First, they couldn’t sell stuff on their website. They were sending folks to the site and just linking to their product on Amazon.com where people can buy Bug Off. Not a good set up.
The biz owner told me there were making about a sale a day on Amazon. But, when pressed, she couldn’t say how many of those sales came from their AdWords efforts or just people finding them through the Amazon site itself.
That was Problem Numero Two. When you don’t know where your sales are coming from, you don’t know what or how to optimize things to create more sales.
The biggest issue this company had, however, came down to math.
Low Profits + High Click Costs = Bad News
This company makes about $8 profit per bottle of Bug Off sold. And they were paying around $2.60 per click in Google AdWords.
MAJOR red flag.
Let’s make the math easier. Let’s say they could get their AdWords cost per click down to $2.00.
With a profit of $8 per bottle, they’d have to convert 1 out of every 4 people who click on their ads just to break even.
A 25% conversion rate for a company that has a Unique Selling Proposition and sells directly on their own site would be a tall order.
For company in the boat that Bug Off is in, there’s just no way to convert at that level.
The numbers just don’t add up. Even factoring in a few customers becoming repeat customers and/or buying multiple bottles at a time, this company has little chance of running a profitable Google AdWords campaign.
When You Can Afford To Sell at Break Even (or a Loss) in AdWords
That said, you can make Google AdWords work even if you don’t make money on the initial sale.
It’s why Amazon.com, eBay, Zappos.com and other big companies can afford to bid on words in their PPC campaigns that they lose money on.
And the reason why comes down to their back end… and math.
Because these companies aren’t worried about making a profit on the first sale. They are more focused on the LIFETIME value of a customer.
There’s a very revealing quote (I forget where I originally found it) about Amazon’s business model…
“A business model that not only valued long-term cash flow and absolute profit potential, but also deemed near-term profits and profit margin largely irrelevant.”
It’s a concept that many biz owners don’t get.
But it’s a concept that’s key to turning a profit on Google AdWords (or any other marketing channel for that matter) in very competitive and/or low profit margin markets.
See, the ultimate success of your biz is NOT about making a profit your very first sale to a new customer.
It’s about the LIFETIME VALUE of that prospect.
When you’re able to cross sell and upsell additional products and services to your existing customers, you can afford to break even (or even lose some money) on that first transaction.
Which is why Amazon could afford to pay $2.60 a click to market Bug Off using Google AdWords.
Because when someone clicks on the Amazon ad, Amazon’s got thousands of other things to sell them.
So maybe someone clicks on an AdWords ad and puts Bug Off in their Shopping Cart. Then they’re presented with an Insect net for $35 that would be perfect for the picnic they’re planning with their family next weekend. Oh, and here’s a great cooler you can use for picnics… and a gourmet picnic basket, sunscreen, etc.
Decide you don’t want Bug Off? No worries. We’re Amazon and can sell you 50 other varieties of insect repellent you might like better.
The Bug Off company however sells just one product. With no back end. And no cross sells or upsells.
And with such a low lifetime value of a customer, Google Adwords ain’t gonna be profitable for them.
So, my advice to Bug Off was this…
… Don’t waste time and money with Google AdWords (no matter what your PPC management agency tells you).
Unless they are going to create a bunch of additional products or services they could sell to people, the math just doesn’t work for them.
In their case, they’re better off trying to get Bug Off into more retail stores and, possible, on more ecommerce sites. In this scenario, they’ll be selling Bug Off by the case to retailers instead of onesie, twosie at a time to consumers.
Google AdWords comes down to the numbers. And sometimes the numbers just don’t add up.
And if they don’t, that’s okay. Don’t force it or be talked into it by an overzealous Google AdWords management company trying to make money off you. There’s plenty of other effective marketing strategies and tactics that are a better fit for your biz.