Breaking Down Cost Per Lead: How To Explain To Clients

Blog Categories:  PPC  

Clients can be unreasonable. We all know that. But most issues usually stem from a lack of understanding, unclear goals or just unrealistic expectations that are never articulated. The PPC management team can avoid at least some of the above with candid, ongoing dialogue and transparent reporting with detailed explanations.

Cost per lead/cost per acquisition (CPA) is a common metric used when determining client goals and meeting these goals with ongoing improvements, so let’s focus on that as our main example.

First off, it’s important that you help the client understand CPA in a more detailed perspective. Most clients will inherently view CPA from the following simple formula:

CPA = Cost/Leads

How can we explain optimization using the equation above? Reduce costs and increase leads? Obviously, if everything works perfectly and the client’s market is relatively straightforward, this explanation can be satisfactory. But taking this a step further can pay dividends and help the client understand additional factors at play.

CPA = CPC/Conversion Rate

The change seems simple, but this version of the equation lends itself to more dialogue and a deeper understanding of the levers we can pull to see improvement.

Actions to Reduce Cost Per Click

  • Keyword Bid Adjustments
  • Device Bid Adjustments
  • Landing Page Improvements focused on Quality Score
  • A/B Ad split testing (CTR focus)
  • Targeting adjustments
  • Negative keyword additions to avoid erroneous traffic and wasted spend
  • Ad Extension testing to improve Quality Score

Actions to Improve Conversion Rate

  • Landing page design testing
  • A/B Ad split testing (Conversion focus)
  • CTA/Offer testing

Now the client immediately has a better understanding of what actually goes into decreasing the CPA over time.

Additionally, recognizing the latter version of the formula can also help shed some light on realistic expectations in the client’s eyes.

For example, let’s say the client has a monthly budget of $1,000 and a CPA goal of $20/lead. However, you note that CPCs (cost per clicks) are nearly $10/click and Conversion Rate averages 25 percent. You can easily explain to the client how this goal is not immediately feasible, as it assumes 50 percent Conversion Rate given our CPA equation. Subsequently, you can lay out a plan for Quality Score improvement to reduce CPCs, and a landing page testing plan to improve the Conversion Rate over the next several months.

Now the client has a better understanding of how all of those tactics it sees actually apply to its bottom line, and what to watch for in addition to straightforward CPA numbers month over month.

The big point here is that communication is key. If you believe in your plan (even if results aren’t as immediate as the client would like), explain the ins and outs, and don’t be afraid to take the discussion another step down the rabbit hole. In most instances, this will only benefit you and the client.

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