DAY # 233

UPDATE: Monday, 06-Feb-2006 1:35 PM

Just spent some time going over Yahoo's pay per click program. I created an account, but I didn't fund it as I was not given a $50.00 credit that was offered. I'll have to delve into it further during the week to see what the deal was. Anyway, the point I pursued was this logic:

At this time I know that around 1% of the people who receive an e-mailing from a targeted list --a list that has been around for a while are more likely to visit maxsimo.net. From that, around 10% sign up to the program for free. And from that around 18% tend to upgrade.

If I work the above numbers backswords, it comes out like this:

About 1 in 5 people upgrade. Therefore, I have to get 5 free sign ups to get one upgrade. To get 5 free sign ups, in a system where 1 in 10 visitors sign up, I have to get 50 visitors.

If I run the above scenario forwards to check it, here is what happens:

I get 50 visitors. From these 50 visitors, 10% signup or 5 sign up. From these 5 free sign ups, 1 will upgrade.

So, what I am working on now is to take these numbers from Google Adwords and from Yahoo's pay per click program (which I cannot remember what it's called now) and see what kind of conversion rates I can get for the money spent.

My goal was to get whatever click thru rate PER $100.00 spent. Let's say that for $100.00 I can get 50 people to click through to maxsimo.net. Then from those 50, let's say that 10% of the people will signup to the free program. That's all. Anyway, then out of 50 click per day, 10 sign up. Now I know the 18% rule. Let's just say that it's 10 --so that means that out of 10 sign ups 2 will upgrade, and the company will earn $40.00 (net).

This is a VERY QUICK WAY to go broke, since I've spent $100 to get the visitors.

It's not even remotely what I want to talk about with the IR's. Then what is the solution?

Increase the signup rate? Ok, doing that may take the 40% to 50%, but that is not at all realistic. Let me say this: Often I am wrong by 50% as oppose to being write 100%. So, taking a conservative position, let me look at it like this: Let say I can signup on 1 in 10 visitors. That's only 10%.

Let's say that 1 in 10 sign up: From 100 visitors, that 10 sign ups.

Now let's say that out of the 10 sign ups, ONLY 1 upgrades. So, a 10% conversion rate --this is high, but again, it's only at 50% of the current rate.

But to be sure, let me CUT THAT in HALF!

Let's say to be careful that only 5% will upgrade, and that average upgrade will yield $20 NET profit. This is the money kept by the company after all costs, commissions, etc. are paid. I take this position because this is what our IR have to look forward to when they get paid.

So, at this point: 10 people sign up, 1 upgrades. Account is POSITIVE by $20. In this exam, the question is WHAT DID the 100 CLICKS COST? What does it have to cost to make 100% profit?

Let me run the numbers:

100 Visitors Cost: VC
10 Signup Cost: VC
1 SALE COST: VC

1 SALE PROFIT: $20
For a 100% profit, the one sale (VC) cost has to be $10.00 dollars.

So, 100 visitors should cost $10.00 as that is the number that gets me 1 sale. That means that IF a visitor costs $0.10, then the IR will earn a 100% return on their advertising costs.

However, when I setup the account, I would have to spend around $5.00 per visitor to get 1 sale. That would mean that I would have to spend $500.00 to generate 10 sign ups and from that 1 sale to generate $20.00 in commissions.

Not good at all: $500 spent - $20 earned = $480.00 in the RED!

Ok, this would never work. This will instantly KILL this business or any other for that matter. This reminds me of a place where I ate lunch a year ago in Bethesda, Maryland (USA) and while speaking to the owner, I found out that he had spent $1,500.00 recently putting a coupon in a paper and generated 10 visitors for his lunch buffet. His average ticket for a lunch is $20. So, after spending $1,500 on advertising, he generated $200.00 in sales. Suffice it to say he was not doing well, and he was not happy.

His type of business worked very well on "word of mouth" advertising where his lunch customers told a few friends and the word spread, and that kept him in business. But advertising always did not work. Yet everything that he learned in every book told him that HE MUST ADVERTISE. He must be listed in the Phone Book. That he must spend a lot of dollars every month on news paper ads, etc.

BUT, nothing worked. I face the same situation.

OR is there a solution? You bet there is!

Notice the premise of the problem? The cost of the visitor that all this pay per click advertising generated was VERY HIGH!

Paying $5.00 per visitor just to come to a web site is OUTRAGEOUS! But, when I pulled up "Internet Marketing" as the KEY WORD in my online Yahoo ad setup I could not believe how many advertisers were paying just that to get their message out.

Then what is the solution?

What if the cost of the visitors is just $10.00 and that leads to a $20.00 sale? Well, obviously, that is the way to go, and somehow I need to explore how that can be done. As far as advertising there is ONE location that I think can deliver that, but the cost of the "test" will be in the $1,000's so I need to make sure that I have everything in order before I dive in.

Ok, with that, I bow out. Carpe Diem, Sam.

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