It Doesn't Add Up!?, Why is ppc so high for "Gourmet Coffee"? Options

[danloffler]

Hi all,

This is my first post.

I own a web design and hosting business and one of our clients is a coffee importer running an ecommerce site.

I did a little research, using Overture's tools, and found that the best search phrase for my client would be "Gourmet Coffee" for overall search volume. But when I looked at the ppc it is $2.19 for first position and tenth position is still $1.00!

I did a little more research and found that according to one source the average conversion rate is well below 10% and another source has the average at 2%. The people who are buying the phrase "Gourmet Coffee" for $2.19 I am sure don't have an average sale above $20. and their mark-up is high but still what - $10?

So if it costs $2.00 per click and you convert 5% that's $40.00 to make a $20 sale. Even if you expect 10% to become loyal, long-time customers, that's $400 per customer and they will have to buy at least $800 worth of coffee just to break even!

Why are these people bidding this term up so high? Am I missing something?

Thanks.

Dan

[Randy]

Welcome Dan ! (IMG:http://www.highrankings.com/forum/style_emoticons/default/bye1.gif)

A few thoughts come to mind immediately.

1) None of them understand ROI, which I doubt is the case.

2) They have other means of obtaining revenue and aren't breaking out the PPC return on investment from the whole. Somewhat likely.

3) Since Gourmet Coffee is a commodity that needs to be replenished from time to time, they're using the initial click costs as a loss leader, expecting to retain the majority of PPC-delivered customers for additional future sales. Hence, one click does not equal one sale but many sales over a period of time.

If I were a betting man I'd be placing a wager on #3.

[Haystack]

Good questions, Dan.

I'd expect the average order size to be much higher than $20 since it seems a bit unlikely that a customer would be willing to pay shipping for only one pound of coffee.

At over $2 per click, it seems safe to me to assume the retailers are tracking their conversion rates on the term. I know I'd pay attention to any term costing me $1000 or more a month.

[Opie1Canopie]

Could it be that a large agency (or agencies) are making these buys and therefore may not concerned with the actual ROI? If they are fronting the costs for the PPC charges and are rolling them up in the total project cost to their clients, it would probably not seem excessive. That is if they promise traffic only (no conversion) - which I'm sure many still do.

Or it could be that they're just not doing any return calculations?

[OldWelshGuy]

HI Dan welcome (IMG:http://www.highrankings.com/forum/style_emoticons/default/bye1.gif) take a look at this

arcade coffee Moderate 0 93 0.0% - - 1.4
automatic coffee machine vending Moderate 0 0 - - - -
blue mountain coffee Strong 1 74 1.3% £0.07 £0.07 5.3
chocolate coffee gourmet Moderate 0 6 0.0% - - 6.7
coffee and tea Moderate 0 73 0.0% - - 1.8
coffee company Moderate 0 47 0.0% - - 1.3
coffee drink hot machine table top vending Moderate 0 0 - - - -
coffee merchant Moderate 0 0 - - - -
coffee merchants Moderate 0 0 - - - -
coffee organic Moderate 0 40 0.0% - - 7.3
commercial coffee machines Moderate 0 14 0.0% - - 7.3
espresso coffee Moderate 2 182 1.0% £0.43 £0.86 3.7
espresso coffee maker Moderate 0 37 0.0% - - 2.1
espresso coffee makers Strong 2 12 16.6% £0.29 £0.58 3.0
espresso coffee pod Moderate 0 2 0.0% - - 8.0
expresso coffee machine Moderate 0 3 0.0% - - 5.7
filter coffee Strong 2 148 1.3% £0.32 £0.63 2.7
flavia coffee machine Moderate 0 3 0.0% - - 2.0
gaggia coffee machine Moderate 0 3 0.0% - - 1.0
gourmet coffee Strong 2 176 1.1% £0.45 £0.90 4.8

I am sure you can pick the bones out of this (IMG:http://www.highrankings.com/forum/style_emoticons/default/wink.gif)

It was a market test I did for a potential client. These are Google adwords stats, over a period (not saying what period, or where the geo was set to etc, ). Look how strong the Phrase is. I have to agree with Randy that it is ALL about grabbing the client and getting repeat business.

Gourmet coffee is a loss leader for repeat business, if the average order lasts 28 days, then you only have to keep the customer for 3 orders to make a healthy profit, and, if done properly then you really should not lose clients.

OWG

<edit> removed some of the terms I posted, list too long!

This post has been edited by OldWelshGuy: Jun 4 2004, 02:07 PM

[danloffler]

OWG,

Thanks for the key phrase list. Can you explain what the numbers represent?
Sorry for the noobie question.

I have not been able to find a keyword research tool on Google similar to the one for Overture. Is this where you get your info?

I have developed a similar list of key phrases for my client who is specifically selling Costa Rican Coffee, but most of the phrases are not getting many searches per month.

Dan

[danloffler]

Hi all,

As a second part of my question ...

My client expects his average sale will be around $20. including shipping. I don't feel that more than 10% will become loyal, long-time customers. The types of coffees he sells are unique and not for everyone.

Do I recommend a maximum price to pay for a click and weed out phrases that are above this price? (to get on first page of search results)

Dan

[Haystack]

Dan, if the coffee represents a niche within the gourmet coffee industry, you may not see acceptible conversions from the more general term "gourmet coffee." Of course, the only way to know for sure is to test. Generally, the most specific terms convert at a higher rate, and tend to be cheaper too.

Also, be sure to send the traffic to pages speaking to the term, so traffic on "gourmet coffee" should go to a page describing the coffee as gourmet.

[OldWelshGuy]

Can I explain? No problem

filter coffee Strong 2 148 1.3% £0.32 £0.63 2.7

filter coffee
search phrase

Strong
How Google view it

2
Amount of click throughs it received

148
How many times the ad was delivered

1.3%
Average click through rate = 2 /148 *100 or number of clicks divided by the number of times displayed times 100

£0.32
Average cost

£0.63
Total cost

2.7
Average position. So this means that as I was having the ads running only in search results, and this was displayed on average in position 2.7, I can be sure that the number of times the phrase 'filter coffee' has been searched for over the test period was 148 times, as my add would have been displayed every time it was searched for.

With this data, I can be sure that if I get a top ten placing for the phrase filter coffee, then I can expect 148 people to see my page in the same amount of time I had the test running for (not disclosed obviously) (IMG:http://www.highrankings.com/forum/style_emoticons/default/wink.gif) If I can get a top 2 or 3 showing, then I would expect that number of click throughs (although in this case filter coffee is a fairly generic term)

OWG

[mopacfan]

That is very impressive data. What do you use to get those results? Is it a home grown application or a service you use?

[Haystack]

That's data from OWG's Google AdWords campaign for those terms.

[OldWelshGuy]

That is very impressive data.  What do you use to get those results?  Is it a home grown application or a service you use?

Like Ed said, it is data from an adwords campaign used to research keywords. Without doubt the best way IMO.

You see it all comes down to maths, if you know how many visitors you need to convert to enough sales, and you know how many people are searching, then you can, with some certainty set off on a campaign that you know is going to pay for itself in no time.

I work a lot with people who have business ideas, who are thinking of, or actually have just started up in business, or are looking to take their business online. In all cases keyword research is one of the first things I do, as we need to gauge the competition volume quality etc, and also the volume of potential business that is available. If the volume of search is low, then we have to make damn sure that we have a way better site than the competition, appearing way higher in the SERP's to get maximum conversions. It sort of helps to focus the overall plan, setting realistic budgets to ensure their online presence is going to compete with what is already there. Adwords is great for getting business, but it is a fantastic research tool also.

This post has been edited by OldWelshGuy: Jun 5 2004, 03:08 AM

[goodman]

I think we'll soon see that those clicks are underpriced. Every business won't make money at those levels, obviously, which will leave the field open to those who can.

1. Anyone searching for "gourmet coffee" likely has refined tastes or is a high net worth individual.

2. As others have said, coffee is consumable. Once acquiring that customer you might have a long-term relationship that no longer costs you $X to generate a sale from.

Click prices on anything like disposable contact lenses, wine, coffee, vitamins, creams and potions, golf balls, etc., are likely to continue to increase for some time to come. Some retailers are probably going to be fairly shortsighted about long-term ROI at this stage of the game. Some don't even know what a business model is. By contrast, many of the big boys "get it."

Traditionally, advertisers don't require 100% ROI seconds after spending on an ad!! If you do, you're really playing the game conservatively. And that could cost you market share. It is really interesting to watch the game at this stage of its development. Some smaller companies can see that they're growing a business and building a market; others act like hot dog vendors, just hoping to take home some extra cash at the end of each day.

I'd love to hear Warren Buffett give a speech on this stuff!

[The Grudge]

Couldn't agree more OldWelschGuy, I always tell people that the best keyword research is done through AdWords. I will use Wordtracker to develop a starting point, but I refine everything while running my AdWords. It sounds to me like you are all spot on with your assessment of the situation, it is about getting the customer. A few bucks is a modest investment for such potentially lucrative customers.

(IMG:http://www.highrankings.com/forum/style_emoticons/default/smile.gif)

[Deverill]

The types of coffees he sells are unique and not for everyone.

Perhaps you should carve out that niche of unique coffees and target your adwords to that. Not knowing your line I can't offer ideas but something like "European gourmet coffee" or "Kosher coffee" or whatever.

That which makes your guy's imports unique and not for everyone also makes it perfect for someone (several someones actually).