Point to note that this obviously varies from industry to industry, for example, a single lead for a real estate company which coverts can lead to a massive return on investment even if they get this conversion after collecting hundreds of leads.
So lot depends on the pricing of the products offered. But if the products are what we call as high ticket items then the amount spent on the campaigns is also huge, since they have to collect hundreds of leads which may lead to a few conversions.
What was the result of the poll?
30% votes for 2x Returns
24% votes for 3x Returns
27% votes for 4x Returns
19% votes for 4x+ Returns
Let’s Analyze this…..
Scenario One
Conversion Value: Rs.1,000
This the the average purchase price of the products that you sell online, This is also known as your Average Purchase Value.
Website Visitors from your Digital Marketing Ads : 2,000
Cost per Click : Rs.25
So total cost of the Campaign = Rs.50,000 ( visitors x Cost per click)
From 2,000 Website Visitors you get 100 conversions, in others words 100 people out of 2,000 website visitors buy from your website.
So total sales = Rs.1,00,000
So this is 2x Returns, you have spent Rs.50,000 on your ads and you have got Rs.1,00,000 of sales from 100 purchases.
Is this profitable?
As a digital marketer you might show this as an impressive result to your client, but is it profitable for the client?
Now let’s take the expenses of the client…
Cost price of Products = Rs.300
So Total Cost Price = Rs.30,000
Taxes and other Expenses= Rs.50,000 (GST plus other business expenses, website maintenance, payment gateway charges etc., which is a very conservative estimate given)
So actually the client has suffered a
Loss of Rs.30,000 ( Sales – Cost of Products – Cost of Ad Campaign – Taxes and other Business Expenses)
This is on 2x Returns…
Scenario 2 ( on 3x Returns)
Sales = Rs.1,50,000
( We got 150 conversions out of 2000 website visitors, we have presumed that we have improved our conversion rates)
Ad Campaign Expense = Rs.50,000
Total Cost Price of the Products = Rs.45,000
Taxes and other Business Expenses = Rs.55,000 ( only increased marginally )
So the client just managed to suffer a very small loss or broke even.
Scenario 3 ( on 4x returns)
Sales= Rs.2,00,000
Ad Campaign Expense= Rs.50,000
Total Cost of Products = Rs.60,000
Taxes and other Business Expenses= Rs.65,000
So the client now makes a
Profit of Rs.25,000
But you need to consider the following:-
- Do not forget that along with Digital Marketing Ads, you will also be doing regular organic posting on the social media platforms which will also get you customers and conversions.
- And also hopefully get visitors to your website from SEO listings.
- If you combine that with your ad results then your client can hit profits without getting those 4X returns.
- You cannot depend only on ads to generate profits from your digital marketing campaigns.
Another way to increase sales is by upselling and cross selling products to your customers at time of checkout to increase your conversion value which can make a big difference to your bottom line.
Points to note:
- It is difficult to hit 4x returns on your ads as soon as you start them. A lot of times ads see these kind of returns only once the campaigns are running for a while.
- Your target audience needs to see your ads on a consistent basis supported by organic marketing to finally see you hit those magic numbers.
Next week I will be releasing an article on the causes of low conversion rates and how to correct them.
See you next week!
Dipen Mashru
Digital Marketing Trainer & Consultant
