07. Finding Your Max CPC Example Part 2

Finding your Maximum CPC Bid – Examples

If you found it easy to follow along the calculations to determine your maximum CPC bid in the last video, feel free to skip these examples. In any way, these examples should make you feel more comfortable in doing these calculations yourself. It can be a good idea to do the calculations yourself before looking at our solutions.

Example #1: Betabrand

Assume the following:

  • 7% of users who click on a search ad turn into buying customers
  • The average customer makes an order of $80
  • Betabrand occurs costs of $32 per average order

What is the maximum they should bid per click?

  • The value of one visit to Betabrand’s site is 7% x $80 = $5.60
  • Betabrand’s profit margin = $48 / $80 = 60%
  • Betabrand shouldn’t bid more than 60% x $5.60 = $3.36 per click

Example #2: Ezequiel Farca

Assume the following:

  • 10% of users who click on a search ad sign up for his newsletter
  • 3% of the newsletter subscribers later convert into his design consulting services
  • The average customer buys services worth $5,000
    Ezequiel’s profit margin is 75%

What is the maximum he should bid per click?

  • Since the newsletter itself doesn’t generate any profit, we have to take into account the conversion from newsletter subscriber to actual customer. Hence, the value of one visit to Ezequiel’s site is 10% x 3% x $5,000 = $15
  • Ezequiel shouldn’t bid more than 75% x $15 = $11.25 per click

**Example #3: BambooHR **

Assume the following:

  • 2% of users who click on a search ad sign up for a sales demo (they become leads)
  • 10% of the demos convert into a subscription to BambooHR’s services
  • The average subscription lasts 3 years and costs $800 per month
  • BambooHR’s profit margin is 30%

What is the maximum he should bid per click?

  • Since the demos themselves don’t generate any profit, we have to take into account the conversion from lead to actual customer: 2% x 10% = 0.2% of website visitors turn into customers
  • The conversion value equals $800 x 36 months = $28,800
  • Thus, the value generated by one website visitor = 0.2% x $28,800 = $57.60
  • BambooHR shouldn’t bid more than 30% x $57.60 = $17.28 per click

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