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- Sep 3, 2017
Thanks for the insight, I never knew one could go so deep into the analysis of numbers that you did, that will be of beneficial value to the survival of a business. I guess I need to take AgainstAllOdd's advice and pick up a book on maths for business majors.I'm glad you didn't totally just discount math and my post. My intention was just to show you that problem solving skills are needed all the time and many times you will need to use those math skills that you've learned.
Let's say that you just go with your gut. In my shipping case, if your gut said choose UPS, you would have picked a -$300 choice. The problem isn't that you chose wrong. It's that you would have never known if you were right or wrong. Now imagine you do make that choice 10x in a row in a year. Numbers don't lie.
Now let's look at Tony again.
Google CPC averages $.40
Google conversion rate is 2% on CPC
Facebook CPC averages $.85
FB conversion rate is 3% on CPC
Website redesign that may increase his conversion rate by 25% will cost $1000
Profit margins are 50% and his product sells for $50 (meaning $25 profit per sale).
If Google CPC conversion rate is 2%, that means that 1 out of 50 visitors will buy. And if each click costs $.40 that means that it will cost him $20 (50 x $.40) to get a sale. Each sale makes $25. So running Google PPC nets him $5 per $20 spent. Pretty damn good!
Facebook conversion is 3%, so 1 out of every 33 visitors will buy. So when he spends $28.05 ($.85 x 33) he will lose $3.05. So Facebook PPC is clearly a loser here.
What about the $1000 to improve his website? Currently Tony has a 2% conversion rate, so improving his website will make it 2.5%.
Now his Google PPC looks like this. 1 out of 40 will buy. So every $16 (40 x .40) will net him $5 now. Really good!
So now with his $2000, if he spends all $2000 on Google PPC, he would make $500. If he upgrades his website and then spends the remaining $1000 on Google PPC, he would make $312.50.
BTW, just some background. I have a Master's in Engineering and have taken all sorts of never to be used again math classes. And yes they certainly sucked but, never in my wildest dreams while sitting in a math class did I ever think I would be selling products online 20 years later or calculating ROI on CPC. What they are teaching you isn't math, it's real world problem solving skills. Those skills will translate to anything you do later in life.
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