Lifetime Value of PPC Customers

I received this question from "Anonymous" late last night;

"I was able to find out what a competitor was bidding on a keyword. I know the market pretty well and there is no way they can be making money paying that much per click. Why would someone bid 90% or more of the sale price of a product?"

Anonymous,

I won't even ask how you know how much a competitor is bidding;-)

Anyway, it's not uncommon for savvy advertisers to bid amounts that at first glance appear to be ridiculous. You know, people who pay $15 a click for products that sell for $20. I actually see this quite a bit and my hunch is it will become more common over time. Here's why - lifetime value. If you're not familiar with that term and want to be a serious player in the PPC market over the next few years you should be.

Lifetime value is simply the value to you/your company over a customer's "lifetime" with you. How much $$$ do you make from your customers over time?

I'll put it in perspective using a former client (retired) of mine as an example. When I first met the client they had been out of the PPC game for a little over a year. They were working with another PPC management firm for about 15 months and dropped them when it was no longer "profitable" for them to continue. To them, profitable meant spending $x to make $x+ on the first sale. If they spent $10 they wanted to make $15. They were able to pull it off for about 14 months. During that last month things started changing in the PPC market and they were no longer able - at least consistently - to get that immediate return.

I sat down and started analyzing their sales data and was able to determine what the lifetime value of a customer acquired via PPC. What they didn't realize is that their average PPC acquired customer made 3.2 purchases over the first 12 months after the initial sale. What I was able to show them is that while they may have spent $10,000 to make $8,000 in sales over the course of the month the customers they acquired during that month made an additional $44,000 worth of purchases over the next 12 months. Not only was PPC marketing profitable for them, it was more profitable than they had ever given it credit for in the past.

Anyway, the point I wanted to make is that savvy marketers don't care if they make an immediate return. They know the lifetime value of their customers acquired via PPC programs and use that number to determine what they are willing to spend (bid) to acquire a customer.

What's a customer worth to you? That information can change the way you play in the PPC arena.