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  • 6. Consider Using Paid Advertising
  • Rule 1: Set Your Maximum Cost Per Conversion

Rule 1: Set Your Maximum Cost Per Conversion

HIGHLIGHTS:
  • You can calculate your Maximum Cost Per Conversion at the store level, the category level, or even the product level (the more detailed, the better)

  • Maximum Cost Per Conversion is the maximum amount you should be willing to spend on paid advertising to generate 1 sale (1 conversion)

  • Maximum Cost Per Conversion needs to incorporate the value of your time (which you could have spent doing things other than processing orders arising from your PPC ads

  • Maximum Cost Per Conversion = Average Profit Per Order - Value of Your Time

  • Get your 'Average Profit Per Order' from either your actual sales history (over the last few months) or by calculating it based on your best estimates (if your store is new)

  • A good way to calculate the 'Value of Your Time' is to estimate how long it takes you to process an order (pre-sale, sale and post-sale) and multiply it by the hourly wage you're willing to earn

  • Example:

    • Let's say you've made 75 orders over the last 2 months and made $4,500 profit
    • Your average profit per order is $60.00 ($4,500 profit / 75 orders)
    • Let's say you spend 30 minutes on the average order and that you want to make $50 per hour
    • The value of your time is $25.00 (0.5 hours x $50 per hour)
    • Your Maximum Cost Per Conversion is $35.00 ($60.00 profit per order - $25.00 value of your time)

  • Now that you know your Maximum Cost Per Conversion, you can always compare your actual Cost Per Conversion to it to see if an ad is worthwhile

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