Performance monitoring and tuning is critical to the success of any serious search marketer. The first and most obvious objective is to ensure that you are earning more than you are spending. But to be truly successful, you need to go far beyond this modest goal. You need to maximize earnings and volume while minimizing costs. Lowering bids will widen your profit margin, but it will lower your volume as well. Increasing bids will likely raise your volume, but your profit margin will shrink accordingly. Balancing these competing interests can be tricky, but there is still moreto consider.
In many cases, the affiliate programs in which you enroll will include performance bonuses for higher volumes. In this case, you’ll need to calculate both the cost and the benefit of generating that extra volume to determine whether to target a particular performance goal. Multiple performance tiers can complicate this task even further.
A properly tuned campaign can bring costs down and bring volume and earnings up. Performance monitoring and tuning can be a complicated process, but the rewards can be astronomical. I have managed several campaigns with daily earnings over $500, and my best-performing campaigns regularly earn thousands of dollars a day, so don’t just settle for good enough. Make sure you maximize your earning potential for each and every campaign that you run.
PERFORMANCE MONITORING
Many search marketers make the mistake of focusing on their click through rate (CTR) when monitoring campaigns. Although CTR is an important measurement to use when tuning your ad text and keyword selections and you will learn more about this later it is a mistake to rely on this single piece of data as a measurement of a campaign’s overall health. The CTR of a healthy campaign can fluctuate quite a bit from day to day, without necessarily indicating that there is any problem. At the end of the day, a campaign’s success is measured by one, and only one, metric . . . profit!
A more stable, and far more relevant, performance measurement is the return per click (RPC), and this is the primary metric I recommend for monitoring the health of your campaigns. Any change in this metric represents a change in either the cost per click (CPC) or earnings per click (EPC) of your campaign, either ofwhich could necessitate retuning the overall campaign.
Monitoring performance is, in itself, simple enough. First, you need to calculate your return on a per-click basis, your RPC.
If performance goals are in place, you will also need to calculate and project the expected return at each performance level.
You can monitor performance in one of three ways:
1. Across an entire campaign
2. For an ad group within a campaign
3. For each individual keyword within an ad group
In some instances, reporting limitations such as the inability to identify which ads your traffic comes from will force you to monitor at the campaign level, and there will be times when tight margins will force you to monitor at the keyword level so that each individual keyword’s cost and return can be monitoredand tuned separately.
Most often, though, you should be monitoring your campaigns at the ad group level, trusting that your ad groups are properly arranged with related keywords that will perform similarly enough to avoid the labor-intensive process of tracking each and every individual keyword’s performance.
Calculating Return Per Click (RPC)
To calculate RPC, you first need to identify your cost per click (CPC) and your earnings per click (EPC). Cost Per Click. The cost per click, or CPC, is the average cost you pay when someone clicks on one of your ads. Most search engines will calculate the average CPC for you, rounding to the nearest cent, but tight margins sometimes require that you calculate the CPC down to the first or second decimal place, so youwill need to know how to calculate the CPC for yourself.
The formula for calculating the cost per click for a given day (or any other period) is as follows: Total cost divided by total clicks equals cost per click.
Total cost ÷ total clicks = CPC
For example, if campaign XYZ spent $200 yesterday and generated 1,054 clicks, your calculation for the cost per click would look like this:
CPC = $200 / 1054 = $0.189
So your CPC for the day is 0.189, or, rounding up, about 19 cents.
Earnings-Per-Click. Your earnings per click, or EPC, is your return on your pay-per-click advertising investment. This return comes to you in the form of commissions from affiliate programs. Accurately calculating your EPC can be complicated, as most affiliate programs will pay commissions on customer actions for a certain number of days, weeks, or months after the original click that brought that particular customer to their site. This is called thereferral period.
Fortunately, in most cases the lion’s share of your commissions will occur on the same day on which the click occurred. That being the case, I suggest a simplified method for calculating EPC, using the commissions earned during the same day (or other period), regardless of when the original click occurred.
In the beginning, this method will slightly underestimate your EPC, but once you have been operating at a steady volume for the full referral period (usually between 7 and 30 days), this method will very closely approximate the actual EPC without the accounting nightmare of trying to match up original clicks to late commissions.
Here is the simplified formula for calculating your earnings per click: Commissions earned divided by total clicks equals earnings per click.
Commissions earned ÷ total clicks = EPC
If campaign XYZ from our earlier example earned $253 yesterday on the 1,054 clicks it generated, the calculation would look like this:
$253 ÷ 1054 = $0.240
Your EPC in this case is 24 cents.
Return Per Click. Now that you know your CPC and your EPC, you are ready to calculate one of the most important measures of a campaign’s performance, the return per click (RPC).
The formula for calculating the RPC is a simple one. Your earnings per click minus your cost per click equals your return per click.
EPC – CPC = RPC
For example, you have already calculated that EPC for campaign XYZ is 24 cents and that its CPC is 19 cents, so the formula for calculating the RPC is simple:
$0.24 – $0.19 = $0.05
Your RPC is 5 cents. In other words, every click that campaign XYZ generated yesterday earned a net profit of 5 cents. Your return per click represents your net profit (or loss) each time an ad is clicked on from the campaign or ad groupyou are watching.
Later, during the performance-tuning section of this article, you will learn how to maximize your profits and determine what your ideal RPC should be.
Once a campaign is successfully tuned for optimum earnings, the RPC should remain within a certain range (which is different for every campaign) during the performance period.
The RPC is a composite of two metrics (CPC and EPC) that should both remain fairly stable in a healthy campaign, and a change in either metric will show up in your RPC. Monitoring the RPC for any sudden changes outside its normal range of fluctuation will help you recognize when these campaigns are running smoothly and when their performance needs tuning, which I discuss later in this article.
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