How to estimate sales & customer acquisition costs for your online start-up by using Google Ads

Every online start-up needs new customers. One of the ways to get potential clients (‘leads’) to your website or app, is by advertising in Google Ads. This article will share several basic tips:

- How to estimate monthly sales by using Google Ads

- How to estimate advertising costs to generate these sales

- Things you need to consider when your start-up’s main platform is an app

What’s Google Ads?

Google Ads is a pay-per-click online advertising platform that allows advertisers to display their ads on Google’s search engine results page. Based on the keywords that they want to target, businesses pay to get their advertisements ranked at the top of the search results page.

How does it work?

Suppose your start-up’s target audience are students looking for apartments in Rotterdam.

One of the ways to attract this demographic is by making sure students who are using Google to look for new apartments see your ad.

Once they see your ad, they can click on it and land on your website. From there on, hopefully a lot will convert into paying customers.

Google Ads allows you to advertise your website on the Google search results.

In the example below you can see sponsored search results (marked red).

Which steps should I take?

1) Create a free Google Ads account.

2) Click on ‘search volume and prediction’ (“Zoekvolume en prognoses bekijken”)

3) Enter keywords that you want to be found on.

Example (written in Dutch):

“appartement Rotterdam”

“studentenkamer Rotterdam”

4) Check results

The results show the amount of people using these keywords every month.

This means that between 1k-10k people search for ‘appartement Rotterdam’ every month.

Nex to monthly volume, the results also show 2 other numbers. These numbers indicate how much it costs to be on the top (sponsored) position in Google.

This example shows you have to pay Google between € 0,08 and € 0,33 for each click.

The lowest number reflects the lowest amount it cost, resulting in a lower position and thus less clicks on your ad. The highest number reflects the top position, associated with receiving the highest amount of clicks.

How do I estimate how much potential clients will land on our website?

In this example, let’s assume 10k students search for ‘appartement Rotterdam’. Let’s assume you choose the highest position in Google.

The amount of people clicking on the top ad in Google depends on the average click through rate, which often hoovers between 2%-5%.

If we assume 5% of 10k students every month click on your ad, this means 500 of those will land on your website.

But that’s a website visitor. I need to estimate the amount of sales!

You’re almost there! You need one additional variable to calculate the estimated amount of sales.

Well 2 actually.

The first one is the conversion rate on your website from website visitor to sale.

This rate really depends on the industry you’re operating in, your business model etc. On average, a quick Google search reveals around 1 to 3% of your website visitors will convert into sales.

The second variable you need is the average price you charge for 1 unit of your product or service.

This obviously depends on your business model. Let’s assume your start-up charges a one time fee of €20 to each customer.

Therefore, the amount of estimated sales is 500 website visitors x 1% x € 20 = €100 pm (€ 1200 py).

Imagine you have a subscription type of business model. In this case, the monthly revenue you get from clients will be recurring! NB: at a certain amount of type, some clients will end their subscription. In that case, you need to add a variable called ‘churn rate’ to decrease your total number of clients.

Ok, that’s sales. How much does it cost to get these potential customers on my website?

Google Ads will charge you each time someone clicks on your ad in the Google search results.

Hence, 500 clicks each month x (€ 0,33 the top position for this keyword) = € 165 pm.

Hey…this looks bad. We invest € 165 pm but we only earn € 100 in revenue. So our net loss is € 65 pm!

That’s correct. This means you need to go back to the drawing board and/or optimize your marketing funnel. Some ideas:

- Increase the price of your product

- Also spend money on branding so your conversion rate will increase

- Add more keywords!

- Don’t advertise on the top position in Google Ads. However, lower positions equal less website visitors and therefore less sales..

A good way to assess the impact of all these decisions on your start-up’s financial performance is to create different scenario’s (“business cases”) in Excel. This allows you to play around with the different variables until you have a business that generates profits.

Don’t be afraid to change your business model if the different business cases don’t lead to a profitable business.

But our main platform is an app!

The methodology I described contains a couple of more steps if your main platform is an app.

Some basic differences:

- The conversion rate from ad to clicks is a bit higher. According to Appsflyer, it’s between 14–20%. Again, there are differences between different industries and countries, but this gives you a rough estimate.

- When people click on your ad to go to your app, they will go to the Appstore (if they have IOS) or Google Play store (Android users). However, not all of them will actually download your app. So when you’re calculating the amount of sales, make sure you add another variable which is Appstore to download rate. This ranges often between 1–4%.

- From the people who downloaded your app, 25–50% will actually open the app.

As you can see, the marketing funnel for apps contains more variables compared to a website funnel. Hence, in order to make profit from an app, you need much more volume.

Things I didn’t cover (but worth exploring):

- Google (and other networks) also allow advertising beyond Google search, such as placing your ad on other websites or apps. Some of these networks can provide much more traffic compared to Google, but are placed into third party apps.

- If your business model relies on people clicking on ads inside your app, you’ll need to consider the estimated click through rate on your ads inside your app & average commission you earn for every click.

- Conversion doesn’t necessarily follow linear steps!

- Paid advertising such as Google Ads isn’t the only way to generate traffic to your website or app. Affiliate marketing is also a powerful way to generate leads but has a different pricing model. Companies such as Tradetracker.com or Daisycon.nl provide such services.

- Influencer marketing is becoming increasingly popular.

Good luck and let me know if you have questions/suggestions!

Sources:

https://www.appsflyer.com/blog/trends-insights/optimizing-path-install-conversion/

https://support.appsflyer.com/hc/en-us/articles/115000610363-Conversion-rate-metrics-explained