Where Do Advertisers Break Even When Purchasing Pay Per Click?

Adverting is an important part of building a business. No doubt about it. You can’t make sales if you can’t get buyers into your shop.

One way online sellers can get people into their eBay store, Bonanzle Booth or stand alone website is pay-per-click (PPC).

The problem is there aren’t a lot of numbers available about conversion rates, cost per acquisition and results. Which makes it difficult for a shop owner know if they are breaking even or even coming out ahead with a PPC campaign.

Let’s take a look at what we do know.

  • Typically advertisers can expect a 1 to 2% conversion of clicker into a buyer.
  • A standard marketing/advertising budget is around 10%

Let’s take those statisticsand put them to work for a hypotheitical Silver Level PowerSeller on eBay — called the MightyTinMan. * A silver level PowerSeller is a seller who makes $3,000.00 in gross sales on on eBay. While the actual profit (margin) from that $3,000 will vary with type of item, let’s give this seller a 50% margin.

That means the MightyTinman’s gross profit will be $1500.00.

If he spends 10% of his gross on advertising he has $150.00 to spend. How will that measure up for a PPC campaign?

One other thing to look at is the average cost of the product(s) he sells. In this example we’re going to say the typical retail price for his product is $25.00.

MightyTinMan decides to bid .50 cents per click on appropriate keywords relating to his shop. That means he’ll receive up to 300 clicks a month, or ten per day. (Click prices vary depending on what keywords your bidding on and how much competition you have. It’s not unusual to expect to pay between twenty-five cents and a couple of dollars a click).

At a 2% conversion rate the MightyTinMan will make 6 sales from the PPC. If his average item sells for $25.00 a month, and his gross profit is $12.50 that means his sales from those six clicks will average him $75.00 a month in profit.

If we are looking at gross profit, our seller MightyTinMan is losing money on the PPC.

There is another intangible factor that comes into play as well. In advertising it’s referred to as the lifetime value of the customer. If the seller is able to get those six buyers onto his mailing list, he has a better than average chance that they will purchase again(around 44%).

However, one of the problems for eBay sellers is that they don’t have control over the names and emails of their customers. EBay sellers are allowed to add customers to a eBay approved mailing list – where they have very restricted access to their customers.

On the other hand, consider this:

EBay sellers have a secret advantage. EBay itself purchases pay per click advertising for their sellers. That’s a mixed blessing. It’s great that they don’t have to purchase the PPC, but if they do want to try a PPC campaign, they’re going to pay more to compete. And you they end up competing against their own listings! With eBay’s buying PPC budget larger than most sellers – that could drive the price way up.

Please don’t be discouraged by this news.

There are many, many benefits to paying for traffic, especially when building your mailing list (if the landing page is set up correctly you can expect a 30% or more conversion)for newsletter signups – if the optin offer is stated correctly.

While PPC advertising is a great way to advertise online, sellers must weigh the rewards and expenses. And for the eBay seller, they are in a difficult spot where realistically they must focus specifically on the cost per acquisition. The buyer may never return to shop with them again, so their is no lifetime value of customer.