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“Josh here from never calm. I m here today to talk about a really simple simple and fundamental principle of pay per click advertising and that is determining europe maximum per click or your upper bound cost per click and i m going to do that in less than two minutes okay so in order to calculate your maximum cost per click you need to know two things you re going to need to know your operating margin and you re going to need to know your conversion rate. Now. I talked about calculating operating margin in a prior video.
So if you haven t seen that video you re going to have to hit the pause button really quick and go find that video if you have seen it let s continue with the example so in this particular example. I m going to say that i m josh industries. Josh industry..
Sells widgets and the operating margin per. Widget. Is 50. Now on my website.
I have a pretty decent conversion rate. I convert three percent of the traffic that comes to my website that means that three out of every hundred customers or three of every hundred searchers excuse me buy his product from me. So if i take the 50 operating margin..
And i multiply that by my conversion rate. I get one point five or a dollar. Fifty a dollar. Fifty is the most that i can pay per click to run a profitable campaign now why a dollar fifty well my operating margin is 50 every time i sell a product now if i m converting.
It. 3 that means that every 30 333. Visitors to my website..
I m making a sell if i m spending a dollar 50 every time i get a visitor to come to my website. If i multiply those two numbers together. I get 50 that means that if it cost me 50 and i m making 50. I m breaking even so i m at my maximum cpc at a dollar fifty per click now if i go to a dollar fifty one per click dollar fifty one times thirty three point three three that means i m selling one item for every thirty three point three three visitors.
I have to my website. I multiply those together i get 50 dollars and 33 cents 50 dollars and 33 cents. Is greater than 50 dollars..
That means that i am losing money and that i ve crossed my upper bound the most i can spend per click to acquire a visitor. So again this is maximum cost per click. I hope you enjoyed the video take care. ” .
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How To Calculate Maximum Cost-Per-Click
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