How to Build a Vending Machine for Customers or Leads (Part 1)
By Lewis Bassett, Bassett Providentia Ltd
Imagine if you had a machine that allowed you to buy customers or leads. You put some money in, wait and then a new signup or sale appears in your inbox a few days later.
That would be a huge asset to your business. You could spend more time helping clients and working on your business. And each month, you would acquire new customers, according to your quota, like clockwork. And if you needed more customers than usual, you’d just put more money in. And if you needed less, you’d just ease back.
If you’re willing to spend money building this asset, I’ll show you how to do it – using Google AdWords and a Web page.
If you can afford the development expense, a customer or lead vending machine is one of the greatest assets your business will ever have. You’ll be able to control deal flow just as you can control the flow of water from a tap.
In this three-part series, I will show you how to use Google AdWords to purchase search traffic and turn it into customers and leads. This isn’t an introduction to Google AdWords, though no previous knowledge is assumed. And I won’t be exploring all the individual bells and whistles either.
Google AdWords and the other tools I mention are always changing, but the principles remain the same. And since this article concerns strategy and principles, I won’t be providing any step-by-step instructions or screenshots. (The official Google help pages are more than adequate for that.)
Throughout this three-part series, we’re going to be focusing on converting search traffic from one keyword only. This allows you to focus ruthlessly on the core essentials, though you can expand to other keywords later when your machine is profitable.
Finding Your Keyword
Imagine a customer that is ready to buy whatever it is that you’re selling. You don’t need to educate them, and you don’t need to persuade them to accept the concept. If you sell golf insurance, this person has made up their mind to purchase golf insurance right now. And they’re using Google to find a suitable provider. Now put yourself in their shoes.
Make a list of the most likely keywords that they would enter into Google. Depending on your product or service, there may be just a few, or there may be many.
Enter each keyword into Google to get a sense of what sort of information people who enter this keyword are looking for. Google does a good job of matching a search term to what searchers want to find, so this exercise is worthwhile.
Give each keyword a percentage rating for how well it matches the profile of your imaginary ready-to-buy customer. For example, if you search for the keyword and see a listing of different companies selling the exact thing your ready-to-buy customer is looking for, give it 100 percent. If you don’t see a single relevant site, give it 0 percent.
This exercise is highly subjective, and that’s OK. Market research isn’t an exact science, and at this stage we’re just investigating the viability of each keyword.
Before we make any decisions, we need to know how much search traffic each keyword gets. A keyword that has a relevance of 60 percent and 1,000 searches per month is more viable than a keyword that is 100 percent relevant but only gets 500 searches.
Use the Google Keyword Tool to estimate the number of searches that each keyword gets per month. Depending on the nature of your business, you may want to use the global or local figure. (If you use the local figure, make sure you’re logged in. Or at least let the tool know what country you are in.)
Now you can work out the volume of relevant search traffic for each keyword. Just multiply the monthly search volume by the relevancy percentage.
For example, suppose the monthly search volume of the keyword “tooth whitening” is 201,000. And suppose that you consider it to be 20 percent relevant to your imaginary customer, who is looking to buy a tooth whitening kit. The relevant search volume is 40,200.
Before you can choose your most viable keyword, there’s one last step you need to take.
Use the Google Traffic Estimator to determine the highest amount that other advertisers are willing to pay per click. Enter the keyword and run your mouse over to the far right of the line on the graph; the “Max CPC” value is displayed in the label that appears. Note this figure down.
This isn’t the amount you will be paying for all your clicks. But for most markets – particularly competitive ones - it indicates the amount that other competitors are making from each click.
Multiply this figure by the number of relevant searches a keyword gets per month. This is a crude way of determining how much money there is in a market. But for our purposes, it allows you to determine which one keyword you want to focus on to begin with. (You want to focus on keywords where there is money to be made. This best indicator of this is if other competitors are already making money.)
For example, suppose the highest cost per click shown is $22. If there are 40,200 relevant searches, then the estimated value of all that monthly traffic – for our purposes of choosing the right keyword to build our machine on - is $884,400.
Estimate Development Costs
I mentioned at the beginning, you have to be willing to invest money into developing your customer/lead vending machine. This means you’re going to be paying for clicks that will not convert into customers, at least to begin with – possibly for a few months. We need those clicks for testing. So it’s essential that you estimate how much investment is required.
Again, use the Google Traffic Estimator to determine how much you will probably need to pay per click to display your ads at position four. (You don’t need position one. In fact, position four most often converts better than position one.) After you enter the keyword into the tool, you’ll need to enter a “Max PPC” figure into the tool and see what position Google estimates you’ll get. Revise this figure until you get to position four. This is a rough estimation of how much you will need to pay per click.
Your ads are not going to get clicks from every person that searches for that keyword. We’re aiming for 3 percent of relevant searches. To determine how many clicks that is, multiply the total number of relevant searches by 3 percent. That is the number of clicks your Google ads are likely to get, once your machine has been developed.
For example, suppose the keyword “tooth whitening” gets 40,200 relevant searches. That means you can expect your ads to attract 1,206 clicks – once your machine has been developed.
To estimate the cost of those clicks, multiply that figure by the new cost per click we just estimated, for position four. That is the total amount of investment required, if you want to get your machine up and running as quickly as possible.
For example, suppose the estimated cost per click for position four for the keyword “tooth whitening” is $4.28. The total cost of 1,206 clicks would be $5,161.68.
Realistically, you’re going to get a return on your AdWords investment within the first month. And there’s a good chance you’ll start to make a profit before the end of month two. But plan pessimistically. Can you afford to invest the amount required for three months without any return?
(If your budget is tight, you can spend less per month, but it will take you longer to develop your machine. Likewise, once it’s developed, you can ease back your monthly spend if you require less customers or leads.)
An automated machine that puts sales or leads on your desk – according to your own required deal flow – is a very valuable asset. If you want your business to grow, you need a strong supply of new business. Can you really afford not to make this investment?
As you carry out testing and enhance your ads and landing pages, the return on your AdWords investment will increase – quite sharply. Once it’s generating more profit than your spending, you’ve reached breakeven. Within the limits of the search volume of your chosen keyword, you now effectively have a license to print cash.
Estimating Return on Investment
Just because you can afford something, it doesn’t mean it’s a sensible investment. Before you can make a choice about whether or not to build your machine, you need to have some idea of the estimated return on investment (ROI).
First, you need to know what a customer or lead is worth to you.
The starting point is to know the average or estimated lifetime value (LTV) of your average customer. You should know this, or at least have an estimation of it. There are many different ways to calculate or estimate this figure, and it’s essential that you have it – even if it is only an estimation .
If you will be selling a product or service straight from the landing page of a Google ad, the LTV of your average customer is all you need to calculate ROI.
If you will be using your landing page to generate leads – for longer or more complex sales cycles – you will need to work out the average value per lead. Simply divide the LTV figure by the number of leads required for each new customer – on average. This is average value of each lead.
For example, suppose an average customer is worth $50,000 of profit to you over their life. If one out of five leads convert into a customer (on average), then the average value of a lead is $10,000.
From here on, we’ll be referring to a lead or sale as an action. So whichever of the two figures above is appropriate to you is the value per action (VPA). To calculate the ROI, we need to know the cost per action (CPA).
Again, I must stress, this is not an exact science. Real market research comes from being in the game, not from being a spectator. At this stage, we’re only estimating your costs and returns. As you collect real data, you can refine these figures and adjust accordingly.
To begin with, assume that 1% of your clicks will purchase something from your landing page, and 20% will complete a short form – once your ads and landing pages have matured. So divide your cost per click (CPC) by the appropriate figure to estimate the cost per action (CPA).
For example, suppose you will be selling tooth whitening kits straight from your landing page. If a click costs $4, the estimated cost of each sale is $400.
If instead you were giving away a free report to collect leads, the estimated cost of each lead is $20. (It takes less commitment for someone to enter his or her email address, than to buy something.)
Hopefully, the value per action (VPA) is higher than the (CPA). This indicates that you can expect a positive return on investment. Reduce that ratio down (or increase it) so that the CPA is $1. This basically says that for every $1 you invest in Google AdWords, you’re effectively getting back $x.
For example, for every $400 you spend, you get a new customer. And the average customer brings $800 dollars in profit over their lifetime as a customer with you. So for every $1 you spend, you’ll get $2 back.
That is your ROI – the most important metric in marketing, and the one that almost everyone ignores.
After completing these steps, you should have two metrics.
First, you should have an estimation of how much it is going to cost you to develop the machine. This is the monthly cost of the relevant clicks you can attract, multiplied by two or three. (I think it’s better to plan for the worst, but aim for the best.)
Second, you should have an estimation of what the return on investment is going to be for every $1 you invest into your machine buying customers or leads.
You now have enough information to decide whether building a customer/lead vending machine on your chosen keyword is viable and worth your while. Use your own subjective judgement to help you with this decision.
In the next two articles, I will show you how to actually build this machine.
About the Author
Lewis Bassett is an online marketing consultant and speaker, and helps companies to increase their revenue. Bassett Providentia Ltd is his consulting practice.