Table of Content
- Internet sales formula
- How to define a demand
- Demand by states
- Demand by devices
- Examples of search queries with search statistics
- Determining the potential of ad campaign
- How to plan a budget
- Cost per click
- Projected traffic volume
- What is CTR (Click-Through Rate)
- Industry-specific CTR
Case study – forecasting results (theme: electric bicycles) - Project economics:
- Forecasting promotion results for electric bikes
- Calculating future traffic for the query (electric bike)
- Calculating promotion budget
- Calculating sales volume
- Calculating profit
- Calculating return on investment
Online Sales Formula
When considering how sales are formed online, one can simplify the process using the following formula:
Sales = Traffic * Conv. Rate * Average Order Value
A notable aspect of promotion in search engines (such as Google and Bing) is that we are dealing with existing demand. This means that people are already searching for our product or service and are often more inclined to purchase.
Furthermore, we can determine how many people are searching for our product or service, estimate future traffic, and budget, and calculate the project’s economics before commencing promotion.
How to Define a Demand
A notable aspect of promotion in search engines (such as Google and Bing) is that we are dealing with existing demand. This means that people are already searching for our product or service and are often more inclined to purchase.
Furthermore, we can determine how many people are searching for our product or service, estimate future traffic, and budget, and calculate the project’s economics before commencing promotion.
Determining Demand
As an example, let’s take the topic of Electric Bicycles.
Product: Electric bicycles
Market: USA
Google shows us that people make 7,930,100 monthly searches related to electric bikes.
Top 5 States by Search Volume:
- California: 1.5 million queries/month (18.8%)
- Florida: 0.68 million queries/month (8.6%)
- New York: 0.48 million queries/month (6.1%)
- Texas: 0.44 million queries/month (5.6%)
- Pennsylvania: 0.37 million queries/month (4%)
- Other states: 4.5 million queries/month (56.9%)
7,930,100 Monthly Searches
7,930,100 Monthly Searches
Search Volume by Devices:
- Mobile Phones – 6.18 million queries/month (78.3%)
- Computers – 1.53 million queries/month (19.3%)
- Tablets – 0.2 million queries/month (2.5%)
Examples of queries people search:
Determining the Budget
For simplicity in calculations, let’s take one query – “electric bikes” (the most popular one).
Query: electric bikes
Average number of queries: 823,000/month
(the query accounts for approximately 10% of the total volume of queries related to electric bikes in the USA)
Minimum cost per click: $0.4
the price competitors pay to appear on the first page of search results
Maximum cost per click: $2.81
The cost per click competitors pay to appear in the top position in search results
It’s important to note that the number of queries differs from the number of clicks. Advertisers do not pay for impressions but only for clicks to their site.
To calculate the potential traffic, we need to introduce the concept of CTR.
CTR
A ratio indicating how frequently individuals who view your advertisement proceed to click on it. In other words, it’s the ratio of clicks to impressions.
Click through Rate (CTR) – the ratio of clicks to impressions.
The more appealing our advertisement is (for example, if it appears higher in the search results), the higher our CTR, and consequently, the more traffic we can generate:
Forecasting results (Traffic, Sales, Profit, Return on Investments)
Traffic estimation:
Expected traffic = Number of monthly queries * CTR (expected)
Expected Traffic:
Number of monthly searches = 823,000
CTR: 2.69% (average CTR for the e-commerce industry).
Expected traffic = 823,000 (queries per month) * 2.69% (CTR) = 22,139 clicks per month
Budget Estimation
Expected budget = Expexted Traffic * Expected Avg. CPC
Expected Budget:
Expected traffic: 22,138 clicks
Average cost per click: $1.60 (average between $0.4 and $2.81 – rates paid by competitors)
Estimated budget for the query “Electric Bikes” (USA market):
Expected Budget = 22,139 clicks * $1.6 = $35,422 per month
Expected Sales Estimation
Expected Sales = Expected Traffic * Expected Conversion Rate * Average Order Value
Expected Sales:
Let’s assume the average order value is $800. Margin = 35%
With different website conversion rates, sales could be as follows:
Expected Profit Estimation
Expected Net Profit = Expected Revenue * Margin – Ad Cost
Expected Profit with Different Conversion Rates:
In case of a 0.5% conversion rate, we get a loss of $4,428.
The minimum conversion rate to return our Investments = 0.5715%
Return on Ad Spend (ROAS) Estimation
Expected ROAS = Gross Profit – Ad Cost
Expected ROAS Estimation:
In case of a 0.5% conversion rate, we get a loss of $4,428.
The minimum conversion rate to return our Investments = 0.5715%
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