My co-worker, Jenae, recently sent me this email:

“I can’t tell you how many calls I have with folks who are hung up on cost per click (CPC). It’s the main metric they focus on when they start to dig into their campaigns and what they think they want to use Yield Software to optimize. It takes me a couple of discussions and lots of detailed examples to help them understand that while CPC is a tempting metric, having a low CPC doesn’t necessarily translate into a successful campaign — especially if you want conversions or are more ROI-driven.”

Search engine marketing comprises a number of tactics – online and offline – including pay-per-click (PPC) advertising, organic search, branding, and the various methods used to funnel traffic to your Website landing pages.

Too often, however, businesses of all sizes tackle only one aspect of an online marketing campaign without considering the costs of the entire campaign. And the one metric they often focus on, to the exclusion of everything else, is CPC.

Due to this narrow focus, we found that clients have a tough time answering this very basic question: “Is your PPC campaign making money or losing money?”

So, while driving down your CPC is good (and our Yield Web Marketing Suite is fully capable of delivering on this objective), focusing only on this metric may not help you achieve real return on investment (ROI) – nor will it show you how much it cost to achieve those clicks.

Which is why we counsel customers to focus on CPA – or cost per acquisition.

You’ll find lots of definitions for CPA, but in a nutshell, CPA is the amount you pay in total to acquire a customer or online order.

Notice, I did not say the amount you pay per click, but the amount you paid in total to acquire a customer or online order. This total dollar amount should include all of your marketing-related costs for a particular campaign including: branding and advertising, SEO, inbound customer support, and PR, to name a few things.

Only by looking at CPA can you determine if your cost is too high (compared to industry or internal benchmarks).

Let’s say you’re a shoe manufacturer that sells shoes in bricks-and-mortar stores and online. To build brand awareness, you must advertise — whether online, in print, or on TV. You may build mechanisms for capturing Website visitor information (i.e. via newsletters, contests, PPC ads). And you’ll likely need analytics that let you slice and dice data to determine who your target customer is, how she found you online, which products she’s ordered in the past, and when she likes to be contacted (to name a few things).

You may also develop email campaigns promoting your shoes, hire an agency to oversee these campaigns (if you don’t do it in-house), develop landing pages, etc. etc. etc.

By now it should be very clear to you that solely focusing on reducing CPC is not the best tactic. This is because you could be getting a ton of untargeted traffic that doesn’t covert – and reducing CPC won’t don’t anything to increase campaign ROI.

Put another way, which would you prefer:

100 clicks at $0.10 per click, resulting in 1 conversion, at a $10.00 cost per conversion; or

10 clicks at $1.00 per click, resulting in 5 conversions at a $5.00 cost per conversion?

(I know which outcome I’d pick!)

The key, then, is understanding how many clicks – and what kind of clicks – you need in order to convert one sale. Then you can understand what the cost is of getting those clicks. But as I’ve pointed out, you must consider a whole host of other variables before deciding that CPC is too high.

The reason so many small and medium-sized businesses (SMBs) become befuddled with regard to campaign ROI is precisely because of the sheer number of PPC variables. Once you begin focusing on CPA, you may go through a period of trial-and-error in order to arrive at the exact right results.

Sadly, time (and its corollary, sustained investment) is not something most SMBs have on their side… which is why we suggest you start in a more limited way: focus on optimizing three elements of your marketing strategy in tandem – paid search, natural search, and your landing pages – and focus on driving down your overall cost to acquire and convert one visitor.

By optimizing natural search you can improve your page rank in the leading search engines, thereby driving more free traffic to your site. Similarly, by optimizing your paid search campaigns by focusing on your best-performing keywords (in terms of generating conversions), you can drive more of the right kind of traffic from paid sources. When combining the cost of acquiring your paid search visitors with those visitors you acquired through natural search, you effectively lower the cost of acquisition overall.

And because you’re also looking at optimizing your site’s principle landing pages, you increase the likelihood that those visitors will convert.

Small plug: Doing this all on your own, with disparate systems or consulting specialists, can be time-consuming and costly. Which is why we designed our Yield Web Marketing Suite to simultaneously optimize paid search, natural search and landing pages in one fully automated solution. Using our system can help you grow your business and keep it sensibly focused on driving down CPA.

For instance, instead of spending months in trial-and-error approaches, our Yield Web Marketing Suite tests multiple variables across your PPC campaigns and favors the best converting variables in real time. To learn more, sign up for our free, no obligation 30-day trial and see for yourself how you can reduce your CPA efficiently and quickly.

Unlike outdoor advertising (i.e. billboards) or radio and television ads, where precise correlations to ROI can be elusive, search engine marketing (SEM) enables marketers to track interactions and behavior at every step of engagement.

Though a huge number of web marketing professionals employ display advertising on sites like NYTimes.com or FOXNews.com or Yahoo!, a growing share of marketing dollars are being directed to the search engines and specifically pay-per-click (PPC) campaigns.  By buying the “Sponsored Links” you see on search result pages on Google, Yahoo Search or Microsoft Live Search, marketers are able to track: (a) clicks on an ad link; (b) arrival at a website’s landing page; (c) what visitors do once on the site; and (d) whether or not that visitor converts to a paying customer, among many other possibilities.

Such tracking is typically achieved by using a third-party analytics package in your website.  Such packages range from free and easy-to-install (i.e., Google Analytics) to quite complex and powerful systems that are very expensive and time-consuming to implement.  If you’re a small or growing business, Google Analytics is a great tracking package that will give you much of what you need and is very easy to implement simply by following their detailed instructions.

Once a visitor converts to a paying customer, web marketers are able to do an ROI analysis on that particular individual and across all customers who similarly converted to paying customers from the same campaign.  By comparing the total amount spent to acquire customers through a web marketing campaign to the amount of revenue generated by those who clicked on links and converted to paying customers, a campaign ROI can be quickly calculated.

Obviously, most web marketers want to make at least one more dollar than it cost to execute the campaign.  And, there are some instances where web marketers will make well-calculated decisions to arrive at a negative ROI in order to achieve their campaign objectives (for instance, you might decide that acquiring a large volume of new traffic within a tight timeframe, even if there is a negative ROI, is the right long-term strategy for your site).  But ideally, campaigns will perform much better than either of these scenarios and the degree to which a campaign’s ROI is impressive or not will have much to do with a number of factors.  These include:

Pay Per Click (PPC) Campaign Management.  Achieving excellent placement in the Sponsored Links sections of search results pages is a holy grail of search marketers.  There are a number of factors that ensure a PPC campaign is well managed and optimized for the best outcomes.  These include keyword lists, bid management, geo-targeting choices, product pricing and promotion decisions, etc.

Search Engine Optimization (SEO).  While it is important to actively and accurately manage paid search campaigns, it is equally as important to ensure websites rank high in natural (or organic) search results.  Clicks on these links are free to the advertiser and can effectively lower the overall cost of a web marketing campaign when averaged with paid customer acquisition.  By effectively optimizing a website for search engines, web marketers can ensure the same paid links appear high up in natural (and therefore free) search results.

Landing Page Optimization (LPO).  Clicks from both paid and natural search results must resolve to a web page that is optimized for converting first-time or returning visitors into paying customers, which is why LPO is of such great importance to search marketing.  And, LPO is also concerned with keeping the sales cycle as short as possible.  There are both simple and sophisticated ways to manage how such pages are optimized—either dynamically or in limited tests.  Landing pages can be the homepage of a website, but more experienced web marketers will typically create a specialized landing page that ties directly to the links that generated the clicks in the first place.

Anyone interested in embarking on a web marketing campaign should do so with a measurement plan in mind.  Being able to justify the time and expense of such efforts is critical in understanding the best ways in which to attract and profitably retain customers.

So time for a Small Plug: our Yield Web Marketing Suite is a fully automated and fully integrated set of powerful modules to enable you to easily set up and manage your web marketing efforts.  And to effectively measure the ROI on your efforts.  It’s ideal for small businesses and those with limited marketing resources.  Even more sophisticated web marketers use Yield Software to make the management and tracking of campaigns fast, easy and profitable.

For more information about our Yield Web Marketing Suite, go here.

To see more blog posts in our Introduction to Web Marketing Series, go here.