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The Great PPC Experiment: Part 1


For the past few months, I've been saying that I would not use advertising (like PPC) as a primary method of driving traffic to my ecommerce site. I've been told by other ecommerce pros that as a dropshipper with relatively low margins, it would be difficult to spend money on advertising and still make a profit.

However, I've been experimenting with Facebook ads and Google PLAs, and I've made some surprising discoveries that I'm going to share with you as I continue to experiment and learn. Today I'll share some basic PPC principles and what I've learned through using Facebook ads, and then I'll update you in a future post on how the Google PLAs are going.

A few months ago I had the chance to interview Travis Phipps, who runs a booming ecommerce business selling figure skating gear. Travis and I talked about the idea of a CPA (Cost Per Acquisition). In case you missed the interview, here's the basic idea:

Your CPA (Cost Per Acquisition) is how much it costs you to get a single customer.

For example, let's say that I use Google Adwords to advertise for my survival knife store. To keep the math easy, let's assume it costs me $1 per click and that I have a 1% conversion rate.

Your conversion rate is the percentage of visitors to your site who take a desired action. For an ecommerce site, a conversion = a sale. If you have a 1% conversion rate, then for every 100 visitors to your website, you get an average of 1 sale.

If it costs me $1 per click, then I'm spending $100 to get 100 visitors to my website. With a 1% conversion rate, I get (on average) 1 sale out of those 100 visitors.

In other words, I 'm spending $100 to make one sale.

If you're a dropshipper like me, your gross margins are most likely somewhere between 10-30%. For the sake of example, let's say your margin is 20%. So when you make a $100 sale, you pay your supplier $80 and charge the customer $100, and you've made $20. Well, you haven't actually made $20, because you still have to add in the cost of advertising and other business expenses. For simplicity, we'll ignore other expenses for now and just focus on advertising. Based on our calculations above, your ads cost you $100. So you spent $100 and made $20, which gives you a net loss of $80.

Right about now, those of us who passed third-grade math are thinking that this is a pretty dismal marketing plan. And we're right, assuming that our numbers above are correct. 

Photo by misterbisson. Used under Creative Commons.

Conclusion: Assuming that my estimates for CPC (Cost Per Click), conversion rate, and margins are in the right ball park, I can conclude that PPC is not a viable model to market my new ecommerce business.

However, if I could figure out a way to do one or more of the following...

  • Drastically decrease my Cost Per Click
  • Drastically increase my conversion rate
  • Drastically increase my margins

...PPC just might work. For example, if I could find that certain keywords have a CPC of under $0.10, I'd be interested in at least testing those keywords out.

Why I'm a fan of PPC early on in your ecommerce venture

Picture this: You work for months choosing a niche, building your ecommerce website, and launching it. When your site finally goes live, you're full of energy and optimism about the money that's about to start rolling in. But... all you hear is crickets. No one is buying anything. You get a few hits a day, and maybe your mom buys one of your products, but it's nothing like what you had imagined.

This experience can be incredibly daunting and demotivating. I know.

So how can you avoid these doldrums of discouragement? Well, if your marketing plan includes SEO, you'll build up organic traffic over the longterm that will eventually give you a steady stream of traffic and sales without paying for ads. But here at the beginning, I recommend using PPC to drive immediate traffic to your site, even if the ads are eating up your profits.

PPC can be difficult to sustain with a dropshipping store (although it is possible). However, even if it's not part of your long-term marketing plan, you should consider using PPC for immediate traffic to your site in the infant stages of your ecommerce business. Here's why:

1. Instant traffic gives you early wins and keeps you motivated

I know from personal experience that there's nothing more demotivating than not making sales--you start losing focus and being tempted to move on to other things. Having a decent amount of traffic right off the bat should result in some sales, which is incredibly exciting and motivating. Even a few sales early on can keep that excitement high and help you build emotional and mental momentum.

2. Early sales help you identify hangups in your website or process

When I launched Survival Knife Experts and made my first couple of sales, I had it set up so that my dropshipper would be automatically notified as soon as I made a sale and they would then fulfill the order the same day. At least, I thought I had it set up. It was only a few days after my second sale that I realized that my dropshipper had not been notified of the order! I make a big deal on my site about offering same-day shipping, so the fact that this customer's order had not been shipped yet was a major problem. Fortunately I noticed the problem and was able to fix it.

Making a few sales early on allows you to work out kinks like this, as well as set up systems for how orders and customer service will be handled by you or your VA.

3. Early customers help you get to know your target market

For your first few sales, make sure to personally email your customers after they've received their order and ask them about their purchase experience. What could you have done better? Why did they buy from you rather than a competitor?

You may also want to prominently display a phone number or live chat feature on your site early on, even if you don't plan to have a phone number in a highly-visible place later on. This will encourage direct interaction between your potential customers and you, which will help you learn what kinds of questions people have about your products, shipping, returns. etc. These questions and their answers can then be placed on your FAQ page.

My experiment with Facebook ads

A few weeks ago, I began using Facebook ads as a means of driving traffic to Judging by what we talked about above, it was not a profitable marketing strategy, and here's why: My cost per click was $0.08, and my conversion rate on those ads was 0.1%. Notice the decimal there--that's point one percent. This means that for every thousand clicks on these Facebook ads, I got 1 measly sale. In other words, I was spending about $80 to make a sale on which my margin was $10 or less.

So why were these Facebook ads converting so abysmally? I did a bit of research and came up with the following answer: Facebook users are not on Facebook to shop. They are on Facebook to connect with their friends and family. They are not there expecting to pull out their credit cards.

On the other hand, people Googling the name of a specific product probably are close to a purchase decision. I'll talk more about Google ads in a future post, but right now I want to share something fascinating with you that I learned about Facebook ads:

While Facebook ad-clickers are not ready and willing to pull out their credit cards, they are ready and willing to give me their email address.

Here's what happened: after realizing that my Facebook ads were doing me about as much good as if I had written my URL on a balloon and released it into the evening breeze, I decided to ask the people who were visiting my site from Facebook NOT to buy a product, but instead to sign up to my survival newsletter.

I designed a landing page that featured a few bullet points about what my weekly newsletter would include, a picture of a few of my products, and an email signup form, along with a few other bits of information. On the right is a screenshot of the landing page, and you can visit it here.

This page has a 15.7% conversion rate. A bit better than .1%, wouldn't you say? This page has gotten me 440 email subscribers in the past 2 weeks. Whereas before, I was paying $0.08 per click for people to visit my site and never return again, lost forever in the vast sea of the internet, I'm now paying $0.08 per click for 1 in 6 people to tell me, "Hey, I want you to email me."

The Plan

Of course, an email subscriber isn't paying me anything (yet). So how am I going to use this email list to build revenue? Well, I'm starting by doing exactly what I said I would do on the landing page--delivering weekly emails containing survival articles and gear reviews. I'm not going to hard-sell any of my products, and these emails are not primarily marketing emails.

Instead, I'm building a relationship with my subscribers by sending them the quality content that they signed up to receive. I just sent out my second survival newsletter to this list, and, along with a well-written article, I included a small holiday promotion at the beginning and end of the email (a special coupon code only available to my subscribers). I sent that email to my 400+ subscribers two days ago, and so far I've made 4 sales from that one email!

This will take some time to test and see if it's a viable marketing solution. With a 15.7% conversion rate on my email signup page, and an $0.08 CPC, it takes me about 6.3 clicks to get one subscriber. This means that getting each new person to subscribe costs me about $0.50.

To figure out if this is a viable marketing strategy, let's do a little more math (fun stuff, right?). If it costs me $0.50 per subscriber, then it costs me $50 for 100 subscribers. So in order for this email marketing to make sense, I need to eventually get at least $50 of gross profit from those 100 subscribers. If my average margin per product is $10, then I need to sell 5 products total to those 100 subscribers to break even (5 products sold x $10 margin = $50 gross profit). If a customer buys an average of one product from me, then I need to turn 5 out of every 100 subscribers into customers.

Think I can do it? This is new to me, so if you're more experienced with this and have some input, I'd love to hear it in the comments below.

Additional benefit: Building up a community

Aside from directly making sales via email marketing, I'm hoping for the added benefits of building up a readership of the Survival Knife Experts blog, building up a Facebook community, and leveraging those communities to market by word-of-mouth as well. For example, I can encourage my email subscribers to follow me on Facebook. Once I have 1000 Facebook followers on the Survival Knife Experts page, it's going to be easier to get my next 1000 followers through liked and shared posts. In this way, I plan for this investment in my email list to build up a snowball effect and pay other dividends.

What's next?

I'm going to spend a few weeks continuing to build up my email list, producing quality content, and trying to start establishing a community around my niche. As I mentioned earlier, I'm also experimenting with Google PLAs, so I'll let you know what I've been learning about those in an upcoming post.

I'd love to hear any questions or comments you have, so leave a comment below!

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