How much did you say you spend on AdWords?
Does it really matter? How much you spend is definitely not as important as you might think.
Posted by Tony Sambell • 01.05.2018
In AdWords, the most important factor is whether your cost-per-lead/conversion/acquisition (CPA) is driving a positive return. In order to accurately and effectively measure this you need to know your Client Acquisition Cost (CAC).
Every business, no matter the industry, needs to consider their client acquisition cost. Once you know that figure, and your Google Ads account is optimised based on these numbers, it really doesn't matter how much you're spending, as long as your cost-per-conversion is less than your client acquisition cost.
It’s pretty obvious isn't it? Anyone would understand that you shouldn’t spend more to acquire a client than what you’ll profit from them.
Time for some maths (sorry)
You can calculate your client acquisition cost by totalling up all of your sales and marketing costs in a given time period, then divide it by the number of new clients you closed during that same period.
Let’s say you spent $10,000 per month on marketing like Google Ads (PPC).
Within this month, your crackerjack sales team’s 80% close-rate netted you 10 new clients.
Each of these new clients is worth $10,000, equalling $100,000 of total revenue.
Your marketing costs were $10,000 for the 10 clients, so your Client Acquisition Cost is $1,000.
A client acquisition cost of one-tenth the value of the deal may seem pretty good, but if you’re in a service based industry, you still need to perform the work involved in the project or retainer to fulfill the contract. Don’t get too excited, and remember to focus on profit.
Looking at your acquisition metrics helps you predict what your sales will be in a given month or quarter. With this information, you’ll know which marketing channels to spend more money on.
All of this rich data within Google Adwords means that you don't necessarily have to set a max budget, instead you're better off setting a max cost-per-lead.