Overpaying for Pay Per Click Keywords

Posted by Des on 5 January 2011

Recently while working with a client on their online marketing strategy, we investigated Pay Per Click (PPC) advertising and what sort of returns they could expect. We came to some very surprising conclusions.  My client is a major destination hotel in Cork City, Ireland. After some discussions [disclosure I rather invest in SEO] we decided to investigate the costs and return on investment (ROI) from targeting keywords using Google Adwords.  We used the Google Keyword Tool to get the numbers on keyword volumes and average cost per click.  Here is what we found by applying some simple maths.

Simple PPC Maths

We found that the search term “hotel cork” has 74,000 searches per month on google.com and an average cost per click of € 1.82. Using this information as the basis for our calculation and applying a CTR of 3% [average figure] we can easily calculate monthly visitors to the hotel website for this keyword term.

• 74,000 * 3% = 2220 PPC visitors per month

Next we apply a conversion rate of 3% [between 3%-7% are considered good, depending on industry] to the number of PPC visitors per month.

• 2220 * 3% = 67 PPC sales per month.

 Next if we take an average room price of € 100.00 per night, with an average of 2.1 nights per stay [average number of night for this hotel], then we can calculate the monthly revenue

• 81 PPC sales per month * € 210.00 = € 17,010

Okay so we are going to generate € 17,010 in revenue but at what cost?

• 2220 * € 1.82 = € 4040 per month

Based on the maths above, a PPC campaign targeting “hotel cork” does not seem very attractive, and may actual end up losing money.   The online marketing spend will cost about 24% [€4040/€17,010] of room revenue, which is not sustainable. It is costing a whopping €60 [ € 1.82 / 3%] for each online room sale.

Conclusions

It is obvious from the data that either hotel managers and marketers are not monitoring the results or they are getting massive conversion rates. The former seems more likely. If we take 5% of sales as the advertising spend, then the average click price needs to be about €0.31 [(€210 *0.05) * 0.03]. So what to do? First thing is not to follow the pack and chase these overpriced keywords. Instead do your research.

1. Find keywords that are more targeted to your hotel. Try keyword terms that are more specific. “hotel in cork city center”, “boutique hotel cork” etc.
2. Improve your landing page conversion rate, as this will allow you to increase your keyword bid prices
3. Ensure that you have a good statistic package installed to measure conversion rates, and visitor interactions with your website
4. Hire a professional company like getFound