If you’re not familiar with Engine Ready’s free software suite, Conversion Critic, you may want to take a moment to utilize some handy online marketing tools.  Conversion Critic can be used to evaluate your landing pages, check for broken destination URLs in your pay per click campaigns, and to forecast the performance of your PPC marketing efforts.

The calculator is perfect for computing expectations for a new campaign.  Many marketers and business owners want to calculate the risk associated with a new campaign.  Accurately forecasting return on ad spend is a challenge shared by all marketers, which the PPC Calculator attempts to relieve.

The free tool will also illustrate how slight changes in the conversion rate or cost per click can significantly impact your bottom line.  In the example below we can see that a 0.5% increase in conversion rate (everything else being equal) equates to thousands of more dollars in revenue.

Example:

Slide the button, or manually input your ad spend.

Forecast snapshot of performance.

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Many marketers establish a cost per acquisition (or cost per order) metric as a key performance indicator, and use that as one of the measurements to gauge the effectiveness of their search campaign. Computing a target CPA involves understanding what your average lead or order value is (from a search campaign), less the cost of fulfilling that order.

How many marketers though, factor in the life time value of a new customer when computing their target CPA?

Most companies cannot rely only on existing customers for sustainable revenue and profit growth. Even with an unrealistic assumption of zero customer attrition, a company’s growth potential in that scenario is drastically limited compared to his competition that is growing his new customer base while minimizing the attrition rate.

Additionally, new customers tend to generally have a higher lifetime value than returning customers.

So it’s a fair bet that most companies must rely on a continuous stream of new customers. And if it follows that a new customer has a higher life time value and will ultimately bring more sales and profits than a returning customer, companies should then be willing to pay more for a new customer.

In light of this, to effectively manage your search campaigns, you should:

1. Compute a “new” versus “returning customer” CPA by factoring in the life time value of a new customer, and;

2. Have the ability to segregate your search generated sales by new versus returning customer and tie that data back to the source keyword phrase.

If for example, your target CPA was $50, and you had a keyword that performed at $60, you’d probably be tempted to reduce your bidding in an attempt to lower the cost per click and CPA.

However, your data may show 90% of the sales this keyword generates are new customers, and that you can absorb a $65 CPA for new customers. Now, based on this information, there’s room to be more aggressive with your bidding, instead of backing down.

Not necessarily an easy assignment, but most likely worth the effort to get the most of out of your search campaigns.

cpa, life time value, search marketing