It has been said that PPC for ecommerce is dead. That no brand can overcome the high CAC problem. However, there are multiple ways to make your PPC ads profitable for your ecommerce business.
There are many reasons why brands would be hesitant to use Google Ads for their ecommerce customer acquisition efforts. The thinking goes that Google Ads are expensive and customer acquisition costs are high. Therefore, it is impossible to make PPC profitable for an e-commerce brand. In this blog, we'll examine the PPC landscape for ecommerce and explore how to leverage the Google Ads platform to help your ecommerce brand grow.
Google Ads for Ecommerce: A Losing Proposition?
The logic behind ecommerce brands claiming PPC is not a viable path to growth is based on a faulty premise. Essentially, the argument is comparing one apple to a lifetime of apples and calling it impossible. Let's explore.
If an ecommerce brand sells a product for $12, and they are running PPC campaigns where the cost/conversion is $40, then yes, this brand is losing money on PPC. Or are they?
When you think of PPC, everyone thinks of the traditional sponsored links in the results of the SERP (Search Engine Results Page). However, it is better to look at the process as Google Ads, which offers a complete suite of products geared at not only lowering the customer acquisition cost (CAC) but simultaneously (and more importantly) increasing the long-term value of the customer (LTV).
How CAC:LTV Ratios are Changing The Conversation Around Ecommerce Marketing
Very recently, a sea change has occurred in the world of venture capital and fundraising. While from 2020 to late 2021, venture capital firms were funding nearly every startup brand imaginable with the mentality of 'growth at all costs', recently there has been a shift to focusing on brands that can show 'responsible growth' and the metric most are looking at is the CAC:LTV ratio. The formula works like this. A brand that spends $100 to acquire a customer is fine, so long as they are able to get at least $700 from that customer. It might be one $700 purchase or a series of 10 $70 purchases. The textbook CAC:LTV ratio is 1:7.
So when thinking about using PPC for your customer acquisition efforts, it helps to consider the LTV of your customers. Later, we'll explore how to increase the LTV of your customers. But for now, let's talk about CAC.
How to Lower Your CAC on Google Ads
There are plenty of methods to lower the overall CAC of your efforts on Google Ads. Some work better than others, but the vast majority of Google Ads providers agree on the following tactics to lower CAC.
Lower Your CAC on Google Ads by Manual Bidding
Lately, it has become less fashionable to use manual bidding in Google Ads accounts. The agency model of management favors using Google's automated bid strategies, and Google themselves will encourage users to utilize an automated bidding strategy like "Maximize Conversions" or "Target ROAS." While these do achieve their stated goal, the fundamental flaw is Google will spend any amount to achieve the outcome.
Let's look at a real example: If you elect to use the "Maximize Conversions" bidding option, you will get the absolute most conversions Google Ads can achieve. However, your campaign budget will be spent and max out as well, causing your CAC to be high. One skincare brand was experiencing a cost per conversion of over $70 for an average order value of $31. This is not a way to become profitable in your ecommerce marketing.
Via manual bidding, the same skincare brand was able to reduce their CAC to $30, and with other modifications, their average order value had increased to over $50. While not a path to sustainable growth, this positive ROAS is a building block an ecommerce brand can grow from.
Lower Your Cost Per Conversion on Google Ads by Leveraging YouTube Ads
YouTube is a powerful marketing tool. It is one of the only platforms that can regularly return lower ad costs and still convert users into customers. There is a significant lift on the creative end that will need to be made, but once the video assets are available to use, YouTube can be a great tool to achieve your ecommerce marketing goals and lower your customer acquisition costs.
Video is the preferred medium for information in modern digital marketing. While blogging and writing are helpful for SEO, the information can more easily be retained by putting the content into a video on YouTube.
Videos that display your product in action tend to produce the best results, but other video formats can also drive sales for your ecommerce brand. Such videos include:
User Generated Content (UGC)- UGC videos are videos that are produced by a user of your product and typically take 2 different approaches. One is the testimonial or review format where a user talks about the benefits of your product and how it helped them solve a problem. The other is the tutorial format, where a user explains how to use the product.
Unboxing- This format works especially well with bundles or kits. A user receives your box of goods and then opens the box and shows the packaging, the items, and the inserts you may be putting into your ecommerce boxes.
High Production Value Product Ads- The most traditional of videos, these are product showcase videos that have been produced like a television commercial, but are run on YouTube. Examples of great product videos are very common.
By utilizing YouTube, your ecommerce marketing can make a splash and help you sell more products at an acceptable CAC.
Reduce your CAC on Google Ads by Utilizing Negative Keywords
Negative keywords might sound like a way to search insults, but they are actually your way of managing searches you don't want your ads to display for. Ecommerce brands should take advantage of the ability to use negative keywords in paid search to limit the amount of wasted clicks on their search ads. Let's look at some best practices and examples to optimize paid search ads for ecommerce brands.
Negative Keyword Best Practices for Ecommerce Brands
There is no shortage of advice out there regarding the use of negative keywords in paid search marketing. Some of the best tips include
Use Search Insights to Manage Your Negative Keywords: The 'search terms' report in Google Ads was recently moved to the "insights" tab in the Google Ads manager. The search terms are the actual searches that led to clicks on your ads. An example of how to use this comes from a top adult gifts retail and ecommerce brand. This brand sells adult Halloween costumes. However, many clicks were coming from searches for "children's costumes" and "kid's Halloween costumes." By adding "kid", "child" and "children" to the negative keyword list, searches where the ads could display were filtered and more targeted.
Know How People Search: Search engine interactions and behaviors have changed dramatically over the past 10 years, with the majority of these changes coming in the past 3 years with the rise of AI and voice search. A great example of this can be seen in practices adopted by a top selling showerhead company. Some terms that would originally incorporate showerheads would be searches for plumbing equipment. By knowing that customers looking to buy a showerhead aren't necessarily going to use plumbing in their search, removing this keyword from consideration can focus the results for shoppers and consumers
Remarketing is Essential to Ecommerce Success
In the early days, ecommerce brands could sell products with a click or two. Consumers have become much more selective in their product purchases. As a result, it now can take 7-10 touches to convert a consumer into a customer. With that in mind, keeping your cost-per-click low is essential to keeping your overall CAC low. How to do that varies, but there are some best practices to bear in mind.
Use Lower Cost Platforms for Initial Introduction & Acquisition
You may scoff at the concept of low-cost digital marketing platforms, but they still exist. One of the recommended platforms for this would be TikTok. The ecommerce skincare brand we referenced earlier has been running TikTok ads and getting folks on their website for $0.39. Other platforms that produce relatively low cost-per-click values include Meta and, more recently, Reddit.
Focus Your Budget on the Lower Funnel Activities
The bulk of your advertising budget should be focused on your bottom-of-the-funnel ads, the ones that convert consumers into customers. Some of the best lower-funnel content for ecommerce brands include sales. A typical funnel can be built in the following format.
Initial Acquisition: For the initial click, introduce your ecommerce brand with ads on TikTok or Reddit. There are many benefits for ecommerce brands when using these platforms, but the two most important ones are a lower average CPC when compared to Meta or Google and a plethora of targeting options. Reddit's newest platform update allows advertisers to target via subreddit, which helps with finding the most interested potential customers.
Mid-Funnel Remarketing: For mid-funnel remarketing for ecommerce, segmentation is key. Segmenting your audience by their interests and interest level will help to determine what type of mid-funnel content you want to display to them. For example, if you are targeting cart abandoners, then running a promotion for 20% off might make sense. However, if the audience is made up of browsers of a particular category of products, then running UGC content to help build trust is most impactful. Take an omnichannel approach to remarketing, and you will see the best results and increase your ecommerce conversion rates.
Bottom-of-Funnel Remarketing: Deciding what entails the bottom of your ecommerce sales funnel can be tricky. You will want to decide if cart abandonment is a bottom-of-funnel segment, or a mid-funnel segment. Also, where do previous customers come into play? There are many decisions you'll want to make, and data will help you iron out the details.