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Get More Leads at Less Cost – Target Cost-Per-Acquisition Smart Bidding

If you have been driving traffic with PPC ads for your local service business – great job!

But…

Do you know how much you’re spending on acquiring each lead?

After all, if you’re spending more on acquiring leads than the profit you generate from those leads – you’re losing money!

Thankfully, Google can help you control how much you spend on lead acquisition using machine learning technology to make sure that your PPC ad campaigns are profitable.

This smart bidding strategy is based on the concept of cost-per-acquisition (CPA) and we’ll show you how local service businesses can best leverage this feature.

 

What’s Cost per Acquisition (CPA)?

As a marketing concept that calculates the cost of acquiring new customers, CPA helps you determine if your PPC ads are attracting and retaining customers profitably so you can maintain a healthy ROI.

For many small businesses without sales people and the associated overhead, CPA is proportional to lead cost. Lead cost is the amount one pays for leads. If you win 1 in 3 leads, your close rate is 33%, and without sales overhead, your CPA would be 3 times your lead cost.

For instance, if you are a painting company and your average lead cost is $40, and you close 1 in 4 leads, then your CPA is 4 x $40 or $160. Each job you win costs you an average of $160.

How To Determine Your CPA?

Start with your average transaction value, which is the gross revenue you generate from each sale. Subtract the cost of delivering the service and fixed costs involved in running your business (excluding ad spending) from the gross revenue to get the gross profit before advertising.

Next, determine how much net profit you want to make from each transaction. Subtract this number from the gross profit and you’ll get the maximum CPA you should target for acquiring a new customer.

Keep in mind that some factors may affect this final target cost per acquisition (TCPA). For example:

  • If you have a high customer retention rate and high customer lifetime value, you may be able to afford a higher TCPA for the initial transaction so you can stay competitive and get the right customers in the door.

  • Your TCPA can vary based on the service area or type of service. Also, some customer segments may convert more easily so the cost associated with selling to the different prospects may vary.

Applying TCPA To Your PPC Ads

Thanks to Google Ad’s Target CPA bidding feature, you can easily set TCPA for your PPC ad campaigns. Here’s what you need to know:

What’s Target Cost Per Acquisition Bidding?

Formerly called Conversion Optimizer, this is a smart bidding strategy within the Google Ad platform that optimizes bids so you can get as many conversions for the TCPA you set for your campaigns.

You can determine the conversion event (e.g., a click, a request for a quote, a purchase) and set the TCPA as a standard strategy for a single campaign or a portfolio strategy for multiple campaigns.

Google’s machine learning technology uses historical data from past campaigns and combines it with contextual signals present at the auction time (e.g., the user’s location, type of device, remarketing list, time of the day, etc.) to determine the optimal cost-per-click (CPC) bid based on your TCPA.

Setting TCPA In Google Ads

If you have historical conversion data from past campaigns (at least 15 conversions in the past 30 days,) Google Ads will make a recommendation on TCPA, which is calculated based on the actual CPA performance during the previous few weeks.

Here are some bid settings you’ll encounter as you’re setting up your campaign:

  • Bid limits: for most advertisers, Google doesn’t recommend setting a bid limit because it can restrict the platform’s automatic optimization of your bid. It could prevent Google Ads from adjusting your bid for each auction to the amount that best meets your TCPA. However, if you have a limited ad budget, you can set maximum and minimum bid limits to avoid overspending. This feature is only available for portfolio level use.

  • Device bid adjustment: you can prioritize conversion by setting adjustments for desktop, tablet, and mobile devices. For example, if you want to prioritize spending on mobile searches, you can set a bid adjustment to +30% — in this case, if your TCPA for the campaign is $10, it’ll be raised to $13 on mobile devices.

  • Pay for conversions: use this setting if you want to pay for conversions, instead of clicks, in your Target CPA bidding. You’ll only pay when visitors convert on your website or app.

Your TCPA can influence the number of conversions you get from the campaigns. For example, if you set the number too low, you could be shown on fewer search result pages and miss out on clicks that could lead to conversion.

To gauge whether your TCPA is performing optimally, you can review a campaign’s performance using the Target CPA Simulator, which shows you how an ad could have performed if the TCPA was set differently.

A Few Things To Know When Using TCPA Bidding

Since Google Ads determines your TCPA based on historical data, make sure that your conversion tracking is set up correctly. Otherwise, the data won’t be accurate and this will likely affect your TCPA bidding.

In addition, you should have accumulated a good number of conversions (e.g., 30 to 50) for Google to accurately estimate your TCPA.

If you’re just getting started, set realistic initial goals so you don’t limit the auctions you can enter. For example, if your average CPA is $50 in the past few months, setting your TCPA at $25 is likely to be too low and prevents you from taking full advantage of the smart bidding feature.

Also, note that you’ll probably go through a learning phase during the first two to four weeks. Setting a slightly higher TCPA can give you some room to find your footing and then you can bring it back down to your goal TCPA.

Using TCPA Bidding For Your Local Service Business

There are some nuances when it comes to using TCPA bidding for your local service business.

Let’s say a carpet cleaner wants to advertise for his various offerings, such as carpet cleaning, rug cleaning, and upholstery cleaning, which may have different margins and cost associated with delivering the service. Also, certain towns may be more profitable, due to factors such as a shorter travel distance or larger average job size.

As such, the carpet cleaner may be willing to pay $35 for carpet cleaning leads but only $25 for upholstery cleaning. Meanwhile, he may be able to afford a higher CPA for town A than town B.

In this case, the carpet cleaner can set TCPA for carpet cleaning leads at $40 for town A and $30 for town B so he can stay competitive in each location without spending unnecessary ad dollars.

The Biggest TCPA Challenge For Local Service Business

As we discussed earlier, Google needs the right conversion data to recommend optimal TCPA.

This is technically more challenging for local service businesses thanks to the often-complicated buyer’s journey. For example, most prospects would click on a PPC ad, visit the website, and then call to make an appointment.

As such, more clicks than Google recorded have likely turned into leads. If you don’t provide that conversion information to Google, the recommended TCPA can’t be optimized properly.

99 Calls has devised a specific solution to help contractors accurately track conversion (i.e., clicks turning into leads) and supply the data to Google Ads.

Our system is set up to track each click and call, match them up, and then mark clicks that have turned into qualified leads on Google as a conversion. This allows Google to learn how to get more clicks that are most likely to turn into leads.

In addition, 99 Calls can run Google Ads campaigns to target a specific lead price, a specific ROAS (return on ad spend,) or simply get as many leads as possible for a given budget – depending on your business objectives.

See how we can help you optimize your PPC campaigns here.

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Key PPC Metrics for Local Service Businesses

As more local service businesses (e.g., painters, plumbers, electricians, landscapers, cleaning services, etc.) are using PPC ads to get in front of prospects and drive traffic to their websites, it’s not enough just to run a few online ads and hope for the best.

As the saying goes, “What gets measured gets done.” If you want your PPC ads to yield the results you want, you need to measure their performance so you can adjust your strategies and fine-tune the results.

However, for many local service providers, plowing through a PPC ad campaign report is no walk in the park.

Which metrics actually matter? What should you focus on to move the needle?

Measuring the wrong metrics is at best a waste of time and at worst, it could derail you to spend your time and resources on improving numbers that won’t translate into profits for your business.

In this article, we’ll explore the PPC metrics you should focus on and what they mean for your online marketing. You’ll also learn the one simple metric that shows whether your ad campaigns are profitable and what you can do to make them work harder for you.

PPC Metrics That Matter For Your Local Service Business

Here are some key PPC metrics and what they can tell you about your PPC campaigns:

  • Impressions: it refers to the number of times an ad has been displayed on search results pages and it’s an indication of visual awareness. Getting prospects to see your ads on relevant search result pages is the first step to raising brand awareness and getting clicks.
  • Click-Through Rate (CTR): calculated by dividing the number of times an ad was clicked with impressions, CTR is a good indicator of the ad copy’s effectiveness. A low CTR means searchers are seeing your ads but aren’t compelled to click through – which could indicate a message mismatch between the keywords or audience you’re targeting and the ad copy.
  • Cost Per Click (CPC): the total cost of all clicks divided by the number of clicks and is an essential metric for evaluating the ROI of the campaign.
  • Conversion rate: it measures the completion of an action by a searcher after clicking your ad, such as completing a form to get a quote, calling a tracking number, or scheduling an appointment. If you have a high CTR but low conversion rate, you should make sure the messages on your ad and the landing page are consistent and the landing page is optimized for conversion.
  • Cost Per Conversion: also called cost per acquisition (CPA), it shows you the aggregate cost to acquire one paying customer. A low CPA is a good indication that your ads are yielding high ROIs while a high CPA means your PPC strategy probably has room for improvement, e.g., by lowering the bids, using more specific keywords, and improving the ad copy.

The Most Important PPC Metric You Should Know

While the various metrics discussed above can help you gauge the effectiveness of your ad campaigns and fine-tune the different components, they don’t directly answer the most important question – is the PPC ad campaign profitable?

After all, if a campaign is driving traffic or even generating sales but the revenue isn’t covering the cost of the ads – you’re losing money!

If you only track one number, make it the ROAS (return on ad spend) of the PPC ads because it tells you whether your campaigns are generating profits.

How To Calculate ROAS

To calculate ROAS, simply divide sales by ad spend: ROAS = Sales / Ad Spend

For example, if you spend $20 on an ad and generate $100 in sales, the ROAS is 5.

ROAS shows you the amount you spend on a PPC campaign in relation to the sales resulted from the ads. Simply put, if you aren’t making enough profit, you should tweak your tactics or stop running the ads.

How To Determine Minimum ROAS

To find out if an ad campaign is profitable, you need to determine the break-even point, which is represented by the minimum ROAS.

You’ll just need a few numbers to figure out the break-even ROAS:

  • The revenue generated by the ads.
  • The cost of the services sold by the ads.
  • Other fees involved in the sales (e.g., transaction fee.)
  • Profit per sale.

Then you can calculate the minimum ROAS for the PPC campaign. For example:

If the revenue is $100, the cost of delivering the service is $50, and the fees are $5, then the profit will be $45 (Revenue – the cost of goods – other fees.)

If your ad spend is lower than $45, the campaign is making money; if it’s $45, you’ll break even; if it’s higher than $45, you’re losing money for every service package sold.

In this case, the minimum ROAS is ($100/$45) = 2.2.

Keep in mind that ROAS doesn’t cover other costs that you may incur in running the campaigns, such as hiring a copywriter or a graphic designer, which you’ll need to take into account when evaluating the ROI of the ad campaigns.

As such, your target ROAS should be higher than the minimum ROAS in order to generate a profit.

How To Track Your ROAS

ROAS is campaign-specific and can be set up to evaluate the effectiveness of an individual campaign, ad group, or keyword.

To correctly attribute each sale to a traffic source/ad campaign and calculate the ROAS, you need to set up conversion tracking.

This is where things get more complex for service-based businesses because unlike eCommerce websites, the conversion event may not be an immediate online transaction. Also, both online and offline interactions are often involved before a sale is made.

However, with the right tools and some thoughtful planning, you can set up conversion tracking on your website to collect accurate data:

First, you need to have a lead-generation website with Google Analytics installed. Then, set up goals on Google Analytics to track conversion events, such as form submissions, phone clicks, or email clicks.

From there, you can associate the conversion event with the specific PPC ad that brought the visitor to your website and track the prospect’s subsequent interactions with your business using a CRM system.

Due to the less linear customer journey, it’s more challenging to map a prospect’s interactions with your business from an online channel to an actual sale – especially for local service businesses that also use other offline marketing tactics, such as word-of-mouth, print ads, or billboards.

For instance, a PPC ad may generate brand awareness but a prospect may finally call using a tracking number on a print ad. Or he may be seeing your company vehicles around enough to build trust before he searches online and clicks on your ad.

To understand how these online and offline tactics work together, you can ask your customers how they learn about your business and what prompted them to get in touch so you can fine-tune your ads to match the customer journey.

How To Improve ROAS For Your Local Service PPC Campaigns

One of the best ways to improve the effectiveness of your PPC campaigns is to focus on maximizing their ROAS.

Remember ROAS = Sales / Ad Spend? In order to increase ROAS, you need to increase sales and/or lower ad spend. Here’s how:

Increase Sales and Revenue

Generate more sales by driving high-quality traffic that’s most likely to convert by doing the following:

  • Improve ad copy to attract high-quality prospects that are ready to engage your services. For example, mention a special offer, include social proof, highlight unique selling points, and add a compelling call-to-action.
  • Match ad content to the target audience segment and make sure the messaging on the landing page is consistent with the ad copy.
  • Review your search query reports to identify “cost-effective keywords” so you can allocate more budget to those that generate the most conversions.
  • Include keywords that indicate high purchase intent, e.g., business name, specific service category, or brand names of products you use.
  • Target local keywords, such as the specific areas you service or local conditions.
  • Improve your website’s mobile experience as more consumers are using mobile devices for local searches. In fact, 61% of mobile searchers are more likely to contact a local business with a mobile-friendly site.

Reduce Ad Spend

Here’s how to allocate your ad budget strategically to lower ad spend:

  • Review your search term report to identify keywords that are getting clicks but don’t result in a conversion event. Add these terms to the campaign’s list of negative keywords so they won’t trigger the ads.
  • Improve your Google Ads quality score, which often translates into lower ad cost, by making sure the ad copy and landing pages are relevant to the keywords you’re targeting.
  • Optimize your bidding strategy, e.g., only show the ads when your target audience is most likely to be searching for your specific services. Experiment with Google’s Smart Bidding feature, which automatically adjusts the bids based on various auction-time signals such as device, location, time of day, remarketing list, and operating system.

Final Thoughts

PPC advertising is a great way to get in front of more prospects and you can augment its effectiveness by using marketing strategies that foster trust and credibility with the community, e.g., by building a strong and recognizable brand and proactively managing your online reputation.

Meanwhile, the various PPC metrics associate each ad with the revenue it generates to offer key insights that will help you understand the effectiveness of your online ads.

By closely monitoring your PPC campaigns and leveraging the right analytics, you can gain insights into the effectiveness of your online marketing strategy and make accurate data-driven decisions to improve your ROI.

Lastly PPC advertising can be a highly productive and cost-effective way to generate leads for local service businesses. However successful PPC ad campaigns require time, effort, and hard-earned expertise. As a local service business leader, you can choose to roll-up your sleeves and dive into the details of PPC. Or, another option, outsource PPC advertising to a local lead generation expert such as 99 Calls.