Achieving Profitability
Knowing how to accurately assess whether a campaign is making or losing money is key to success and normally a prerequisite to growth. If you determine that your campaign isn’t profitable, achieving profitability is often possible by comparing your cost-per-acquisition (CPA) with your expected profit-per-conversion and adjusting keywords or CPC bids to a profitable point.
Finding your CPA is easy with AdWords Conversion Tracking. You can easily find costs for specific actions such as purchases, signups, sales leads, subscriptions, and a variety of other actions.
To start with a simple example, say you are selling downloadable music-mixing software for $50. Your costs are minimal, so virtually all of the $50 is profit for each sale you make.
In your AdWords campaign, you can use this $50 benchmark to assess the profitability of various parts of your account.
Example 1: Ad group level profitability
Say you have three ad groups, each with its own CPA:
- Ad group 1: ‘Music mixing software’ CPA: $35
- Ad group 2: ‘Music production’ CPA: $85
- Ad group 3: ‘Music editors’ CPA: $53
At a glance, you can see that the first ad group is profitable with a cost of $35 for a profit of $15 ($50 – 35). If your campaign is reaching its budget, this ad group is a good candidate for growth.
The latter two ad groups have a cost-per-sale higher than your expected profit of $50. You’ll want to take a closer look at their keywords, ads, bids, and other settings to bring them to profitability.
Example 2: Keyword level profitability
Let’s take a closer look at the ‘Music production’ ad group to see if you can make it profitable. This ad group has the following keywords:
- Keyword 1: music production CPA: $42
- Keyword 2: music production software CPA: $28
- Keyword 3: learn music production CPA: $65
- Keyword 4: music production companies CPA: $230
- Keyword 5: music production packages CPA: $39
Looking at the keyword level, you can see three keywords in this ad group that are actually profitable. It’s the two unprofitable keywords ‘learn music production’ and ‘music production companies’ that are making the average CPA for the ad group appear to be unprofitable.
Take a closer look at the unprofitable keywords:
‘music production companies’ is clearly unprofitable: $50 profit – $230 cost = $180 lost per sale. Removing this keyword may bring the ad group to a point of profitability.
‘learn music production’ is unprofitable, but there might be hope. Users interested in learning music production may want to use your software. It’d be a great idea to break this keyword off into a separate ‘learn music production’ ad group with supporting keywords, ad text, and a landing page. If you don’t have time to fully optimize, testing lower CPC bids may bring the CPA below $50.
Notice that in the above examples, profitability was calculated at the conversion level for a given product or service. This is often more practical than trying to make an assessment at the campaign or account level.
For example, a campaign that costs $5,000 in advertising across a variety of products or services may be more difficult to establish as profitable. Calculating an expected profit-per-conversion for each product or service gives you a simple benchmark for profitability.