How much is that Facebook or Google Advertising Campaign really costing you?

Summer 2010 (Updated Summer 2016)

How well do you understand the price of doing business in an online media marketplace dominated by the Long Tail?

Take for example Google or Facebook. Perhaps you can quote your CPC but do you know the real cost of customer acquisition from your Adwords campaign? What is the sales commission you are paying Google or Facebook for all that new business? What is your Profit Per Click? And how do your efforts rate alongside the rest of the competition?

And, if you don't, how easy is it to find the answers to these questions?

Let's begin by saying there is no shortage of facts and figures to assist you in your forecasting when planning your online advertising spend: e.g.

However the first thing to understand is that the relative cost of CPC advertising is historically high.

For example the industry average for Fashion Retail (inc shoes) is between 3% - 8% of sales revenues. If we accept Google's published estimates of 2:1 then the assumed generic rate for Adwords across SMB would be 50%.

So if we map these CPC advertising platforms against traditional advertising media and retail sales channels we find these "high performance" targeted CPC advertising models sit comfortably at the head of the long tail of advertising spending

The cost of Social Media

Which raises the question: Why do SMB's embrace Google and Facebook's advertising networks so enthusiastically? The simple answer is probably ignorance. Establishing the ROI across these platforms can be difficult. Especially for the mathematically challenged.

For most the equation is very simple: "I spend dimes, sometimes even dollars, but I make hundred's, if not thousands, in sales". What's not to like about CPC advertising? It works! I spend a $1 and it makes me '100s and 1,000's, possibly even $10,000's, in sales every month.

The problem with this analysis is it takes two mutually exclusive sets of data and, in the absence of a costing model that merges them together, assumes a positive correlation.

So what happens when you apply real world CPC data to real world sales data?

Over the past 5 years we have been mapping and modelling CPC data on behalf of our clients and, although there is significant variance in the performance of individual campaigns, we have established a generic rule of thumb that allows us to estimate the historical and future performance of a client's campaign based on a few simple metrics.

The calculator below is a streamlined version of our methodology. To facilitate a cost comparison with traditional database marketing campaigns it includes a comparative analysis with the DMA's published average of Direct Mail Campaigns.

Would you use it to plan your next campaign? No. But it will allow you to explore the relationship between the price paid for CPC advertising and the price of the goods and services and services being advertised.

Product Costing

Cost of Goods & Handling ($): RRP ($):

Adwords Campaign Data

CPC ($): Bounce Rate (%):

Revised Traffic Acquisition Cost

Effective CPC ($):

Est. Gross Margin (after Advertising Costs)

Search ($): Display ($): Direct Mail ($):

Return on Advertising Spend

Estimated Cost per Response

Search ($): and Display ($): Direct Mail ($):

Estimated Revenue per $ Invested

Search ($): and Display ($): Direct Mail ($):

Estimated Profit per $ Invested

Search ($): and Display ($): Direct Mail ($):

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