Perhaps you have asked the following questions, or ones like them, the answers are sometimes hard to come by.

“What Conversion Ratio should I be getting?”

“What is a good CPC?”

Tough questions… but they are very important questions that can make or break your online selling venture.  It’s important to have the answers, so you can create attainable goals.  Whether you’re selling your own products, or doing affiliate marketing I have developed a tool that can help you answer these questions using a very simple formula.  I’ll start by explaining the basics, then give you some real life examples of how you can use this profit calculator to help you set realistic goals for your campaigns.

When you are running traffic to an offer through PPC there are basically three very important factors.  Everyone’s case is different, but you will typically have varying degrees of control over each of these deciding factors.  The way you adjust them, will determine if you make money or not. The Three important numbers are: Cost Per Click (CPC), the Conversion Ratio, and the Payout/Product price.

Using simple math, you can quickly see if your campaign will be profitable.  You need to make sure you get back at least as much money as you put in.  At the least you must break even, anything above and beyond is profit.  You’re shooting for a positive return on investment (ROI).  As I mentioned before, everyone’s product, landing pages, and situation is different so I’ll just get right into some examples.

This first example is grossly simplified to show the concept, then I’ll get into some real world examples.

Suppose you have a product you’re selling and you make $50 when someone buys.  Imagine your landing page has a 1% conversion ratio, 1 in 100 visits will produce a buyer.  For the traffic assume your CPC is 50 cents.  The math is pretty easy here.  You’re only going to break even in this situation if the numbers hold.  You’ll spend $50 to get 100 visitors ($.50 CPC * 100 Visitors=$50 Spent), and you’ll make $50 based on your one percent conversion ratio.  Not so great, but at least you’re not losing money.  1% conversions, and 50 cent CPC is your bare minimum goal on this campaign to ensure you’re not throwing away money.

So that is a very simple example which doesn’t even require a calculator to figure out, and you should get the picture.  Now lets talk about two real examples of people who have come to me with questions about their campaigns CPC and product pricing, and how my profit calculator gave them insight into the harsh realities they were facing, as well as offered suggestions to how they can get these campaigns making money instead of losing it.

Real World Example #1

First example is a client who has an ebook which sells for $10, and planned on getting traffic through PPC.  Some of you may already see the issue here.  At $10 a sale, and PPC costing what it does these days, its going to be an uphill battle unless the conversion ratio is phenomenal.  This client has another ebook, and it converts at about 1 in 150 visitors (fortunately this ebook is getting organic traffic).  So Im using that as a baseline estimate for conversions. Through research I’ve found I can get clicks for around 30 cents.

Things are not looking good.  I throw the three numbers (CPC, Conversion Ratio, Price) into the calculator. Ouch, the calculator tells me the ROI will be -77%.  To get a $500 gross return, this landing page will need about 7500 vistitors, which will cost approximately $2250.  Thats $1700 down the tubes.  Its not looking good for this ebook.

I suggest to the client get a professional LP made with dynamic optimization to squeeze the best possible conversion ratio.  In addition the ebook needs to be redone, and more value added, so perhaps $19 would make more sense as a price point.  Before those two things happen, the only hope for this ebook is to find an SEO who can get some organic traffic flowing, or broker a deal for some much cheaper traffic and hope it converts.  Good thing they didn’t just jump in and start spending money on traffic before thinking it through and running the numbers.  Sadly they did already invest a good amount of time and money on the ebook and platform to sell it on.  Live and learn.

Real World Example #2

A friend came to me about an adwords search campaign he had been running already for almost a week.  Looking for suggestions on how to improve things.  So I ask for the all important details.  He gets about $75 a sale for his service offering.  He doesn’t really know his conversion ratio, he hasn’t sold anything yet.  And the whopper, his CPC is $4. Holy crap…  this guy is in trouble.  I give him the benefit of the doubt, and just guess for a 1 in 50 conversion ratio.

I enter the numbers into the calculator.  The news is not good, the ROI will be about -62%, and that is with a 1 in 50 conversion ratio which is probably wishful thinking.  For a $500 gross return, he’s going to need to make seven sales.  That will take 330 visitors at a cost of about $1320, he’ll lose about eight hundred dollars.

Bottom line here, he’s going to need to get that CPC down, a LOT.  I suggest trying the content network, with some creative placements, or moving to a platform where he can get some decent traffic for cheaper.  He’s gonna have to ramp up the volume, and see how it converts before any real conclusions can be drawn as to whether his model is going to be profitable.

Conclusion

Remember the three magic numbers: Cost Per Click, Conversion Ratio, and Payout/Price.  Then plug the numbers from your own products and campaigns into the profit calculator.  Use the results to set a baseline goal for your campaigns.  Conversion Ratio is usually where people get tripped up.  If you haven’t already run the traffic its probably safe to assume around 1%, 1 in 100.  Thats pretty average for most products online.  You can also go by the word of your affiliate network, they aren’t always correct because its just an average typically, but its a good place to start.