Are You Wasting Money On Adwords?

Somebody pointed me over to spyfu today and I couldn’t help but play around with some of it’s keyword estimates and competing site features.

I plugged in one of my keywords that I currently rank really well for. (top 3 in all search engines)

What I found was that most of my competitors who don’t rank were bidding on this term. In fact, an identical website offering identical features was bidding $0.74/click to be in the top spot.

Given the industry of the website, that seemed really expensive to me… so I dug deeper into one of my websites.

Speaking hypothetically, I took a week long average of visitors and revenue earned for my site. Last week I averaged about 7,000 visitors a day and made right around $100/day (averages rounded to nice round numbers)

Doing some simply math, it appears that my average visitor makes me just over $0.01. That’s about right considering the only revenue this typical niche generates is when a visitor clicks an ad. There isn’t much revenue in free services that show ads. I’d assume the Gmail click through rates are just as low.

So why are these companies paying $0.74/click when (I assume) they’re losing over $.70 for each person that clicks. I started to think about the possibility of branding and return visitors. Ideally, I’m averaging about 50% repeat visitors every day…. but I don’t think repeat visitors are likely to click too many ads. Are they?

Are my competitors so desperate to compete that they’re willing to lose money to take my traffic? Do they know some way of converting visitors to revenue that I don’t?

Many of these competitors seem to rank well for other terms in our industry - just not all of them. Perhaps they’re making enough money organically that they still turn a monthly profit. If that’s the case then they might not notice their adwords campaigns are cutting into their revenue.

What’s your take? Is there a reason to run Adwords campaigns that lose money?

July 27th, 2007