With all the metrics available in a Google AdWords campaign, did you know that only one of them is responsible for your campaign success or failure? It’s hard to believe, but it’s true. If this one data point is superior than your competitors then you will dominate your market.
Can you guess which one? Is it your cost per click? Click-through rate? Quality score? Conversion rate? Cost per conversion? All of those are important, but none of them alone determine your success.
The answer is your EPC, or earnings per click.
What Is Your EPC?
Your earnings per click (EPC) is the amount of money you generate on average from one click on your ad. In other words, if last month you generated $5,000 from 500 clicks on your ads, then your EPC was $10. On average, you generated $10 when a prospect clicked on your ad ($5,000 divided by the 500 clicks).
Another way to calculate EPC is to multiply your sales conversion rate by your average revenue per sale.
EPC = Conversion Rate x Revenue Per Sale
Let’s use the same example as above and assume you had a 2% conversion rate and your average revenue per sale was $500. That means your EPC was again $10 (2% multiplied by $500).
OK, OK, that’s enough math for one day. :)
Why Is Your EPC So Important?
As you can see from the example above, your EPC determines how much revenue you generate from one click on your AdWords ad. By knowing how much you’ll generate, you instantly know how much you can afford to pay per click! To maintain a profitable ad campaign, you know that you can not pay more than $10 per click for any of your keywords.
That’s helpful, but let’s take this a step further. I said EPC determines your long-term success and here’s why…
Why EPC Determines Your Long-Term Success
Beginner advertisers stare at their EPC as if it’s a fixed number and adjust their bids accordingly. In my examples above, the EPC was $10 so that means you’re limited to bidding on keywords that are less than $10. That makes sense and is the most logical approach.
However, this “fixed EPC mindset” will kill your long-term success!
That’s because advanced advertisers (including some of your competitors) know their EPC is just another data point to continually improve. So what happens when your competitors find a way to increase their EPC to $15? They’ll obviously increase their bids in an effort to drive more and more profitable traffic. Then what if they inch their EPC up to $17? Again, they’ll increase their bids.
If at the same time your EPC remains at $10, then I’m sure you see the problem. Over time you simply won’t be able to compete against the competitors with higher EPC. They’ll be able to bid higher and higher, which pushes you lower and lower down the page until you’re nowhere to be seen by your prospects!
This is why EPC is so critical for your long-term success.
How To Continually Improve Your EPC
The key takeaway here is to continually focus on ways to improve your EPC. That’s the only way to stay competitive over the long haul. How do you do it?
I revealed the answer to this question in my basic math example that you likely glossed over. Scroll up and read the formula again for how to calculate EPC. You’ll see that EPC is a factor of two variables:
- Your sales conversion rate
- Your average revenue per sale
Those two variables are the key to your long-term success. If you can increase your sales conversion rate and/or increase your average revenue per sale, then your EPC will, in turn, increase.
I never said this was going to be easy, but at least now you know where to focus. :)