Pay-per-click advertising can be a useful method of increasing traffic to your website, but you need to make sure that you are earning more from each click than you are paying for it. The sales conversion rate of your website multiplied by the amount of your average sale must equal more than your cost per click. If it doesn’t, you are losing money.

Some products and services are more suited to pay-per-click ads than others, and there are many variables to consider. If you are selling coaching on your website, for example, your average sale may be high, but your conversion rate will typically be low. If you are selling an ebook, your conversion rate might be higher but your average sale will be much lower. Here’s an illustration:

COACHING
Number of clicks on your ad each month = 1000
Number of visitors who become clients each month = 1
Conversion rate = .1%
Average sale from each purchase (intake + 3 months) = $950
Earnings per click = $950 x .1% = $0.95

EBOOK
Number of clicks on your ad each month = 1000
Number of visitors who buy ebooks each month = 50
Conversion rate = 5%
Average sale from each purchase (1 book) = $29
Earnings per click = $29 x 5% = $1.45

If you were paying $1.50 per click, pay-per-click ads wouldn’t make sense financially in either of these cases, because you would be earning less than that on each click you get. In order for $1.50 per click to pay off, you either need a higher conversion rate or a higher average sale. If you were paying only $1 per click, though, selling ebooks (with the variables shown) could pay off, but you would lose money selling coaching.

This is why it’s important to do the math before launching a pay-per-click campaign. In the example above, you might think that pay-per-click ads would be worthwhile if you got one new client per month, but the numbers tell a different story.

To estimate your conversion rate, find out how many visitors are coming to your site each month now. Look at the statistics available on your web hosting control panel or ask your webmaster to help you. Then divide the number of sales you are making on your site each month by the number of visitors.

To estimate your average sale, divide the total dollar amount of the sales made from your site each month by the number of sales over the same period. (If a sale will result in a client paying you over several months time, be sure you include in your total the full amount you expect that client to pay, not just the amount paid the first month.)

If pay-per-click advertising doesn’t make sense for you now, look to see how you can increase either your conversion rate or your average sale. Conversion rates can often be improved by writing more compelling sales copy, providing more information about your products and services, or adding free samples to your website. The amount of your average sale can be increased by adding additional products, raising prices, or offering a retainer or membership instead of a one-time service.

Changes like these will improve your financial return on your website regardless of whether you ever decide to use pay-per-click ads.