Q: If a keyword has a 2% conversion rate, and the value of a conversion is $100, what is the value per click of that keyword?
A) $0.002
B) $0.2
C) $0.02
D) $2
Correct Answer is C) $0.02.
Explanation:
Value per Click of a Keyword with 2% Conversion Rate and $100 Conversion Value
When it comes to measuring the success of a paid search campaign, there are a number of different metrics that advertisers can use to evaluate performance. One key metric that is often used to assess the value of individual keywords is the value per click (VPC). VPC is a measure of how much revenue or profit a keyword generates per click, and it can be used to help advertisers optimize their bidding strategies and allocate budgets more effectively.
In this article, we will explain how to calculate the VPC for a keyword that has a 2% conversion rate and a $100 conversion value.
Step 1: Calculate the Conversion Rate
The first step in calculating the VPC is to determine the conversion rate of the keyword. Conversion rate is the percentage of clicks on an ad that result in a desired action, such as a purchase or a form submission.
For this example, we are assuming that the keyword has a 2% conversion rate. This means that for every 100 clicks on the ad, two of those clicks result in a conversion.
Step 2: Determine the Conversion Value
The next step is to determine the conversion value of the keyword. Conversion value is the amount of revenue or profit generated by a single conversion.
For this example, we are assuming that the conversion value is $100. This means that each time a conversion occurs, it generates $100 in revenue or profit.
Step 3: Calculate the Value per Click
Once you have determined the conversion rate and conversion value, you can calculate the VPC using the following formula:
VPC = Conversion Rate x Conversion Value
Using our example values, the VPC would be calculated as follows:
VPC = 2% x $100 VPC = 0.02 x $100 VPC = $2
This means that on average, each click on the keyword is worth $2 in revenue or profit to the advertiser.
Step 4: Use VPC to Optimize Bidding Strategies
Knowing the VPC of a keyword can be incredibly useful when it comes to optimizing bidding strategies and allocating budgets. By comparing the VPC of different keywords, advertisers can identify which keywords are generating the most revenue or profit per click, and adjust their bids accordingly.
For example, if the VPC of one keyword is $2, but the VPC of another keyword is only $1.50, the advertiser may choose to allocate more budget to the first keyword since it is generating more revenue or profit per click. Alternatively, if the VPC of a keyword is lower than the cost per click (CPC), it may indicate that the keyword is not generating enough revenue or profit to justify the cost, and the advertiser may choose to pause or decrease bids on that keyword.
Conclusion
In conclusion, the value per click (VPC) is a metric that can be used to measure the revenue or profit generated by a keyword in a paid search campaign. By calculating the VPC of individual keywords, advertisers can optimize their bidding strategies and allocate budgets more effectively, ultimately leading to better campaign performance and higher return on investment (ROI).