welcome to Methodology

The blog of AgentMethods.com, covering insurance agent websites, web design, and insurance marketing

Video 51: Calculating Your Return On Investment on Insurance Pay-Per-Click Campaigns

April 11th, 2011Posted by akassover in Insurance Agent Websites, PPC, Videos

Oops! When explaining return, what I meant to say is “return is equal to your average commission” (not the avg. premium). When calculating ROI, you care about how much you make, not how much the carrier collects. Sorry about the mix-up!

Transcript:

Hi, it’s Aaron from AgentMethods talking about insurance agent websites, and specifically, we’re talking about pay-per-click campaigns that you can run.  And I’ve talked a bit about what’s in a campaign and some tricks for focusing and optimizing a campaign.  I want to talk today about calculating a return on your investment.  And this is really critical to keep track of to make sure your pay-per-click campaigns are making you money, first off, and if they’re not making you money, to really figure out what variables you need to tweak to improve them to make sure that they return what you need from them, or even if you’re making some money but you need to improve the return, how you can go and refine that.  So we talk about ROI.  ROI just stands for return on investment.  And the basic calculation for ROI really no matter what you’re calculating, whatever industry, whatever campaign, is your return on investment is equal to your return minus your investment divided by your investment.  And this will give you a percent return.  So, for example, if you spend $1 and you make $2, so your return would be $1 divided by $1, so you’d have 100% return.  So that’s a quick calculation.

*Now, with pay-per-click campaigns, your return is pretty obvious.  Your return is simply the average premium you make per sale.  That’s how much you get paid.  When you make a sale, you make your average premium; that’s the return.  The investment is a little more complex.  And to calculate your investment – we’ll just call it “I” – you need to keep track of your cost per click, you have to keep track of your visits per lead or your conversion rate, you have to keep track of your leads per sale or your close rate.  And so your investment is going to be equal to your cost per click times the number of visits it takes to get a lead, so visits per lead, times the number of leads it takes to make a sale, so leads per sale.  And so just to run through some numbers, imagine if you had a $5 cost per click and you have a 10% conversion rate, or it takes 10 visits to make a lead, and you have a 10% close rate, so every 10 leads you get you close one.  That means that your – and they have a $300 premium, let’s just say $300 premium.  If you have a $5 cost per click, 10-to-1 leads, 10-to-1 sales, you’re going to have a negative ROI of 40%.  So that means for every dollar you spend, you’re going to lose $0.40 compared to what you make. *

*Now, to make that profitable, you could decrease the cost per click quite a bit, you could decrease the visits per lead by conversion optimization on your website, or you can decrease the leads per sale, and there’s lots of ways you can do that.  That’s basic sales tactics.  And so just for example, if you were able to decrease the leads per sale, maybe because you’re talking to more qualified prospects or you streamline your pitch to one in five, or 20%, that would take your ROI from a negative 40% to a positive 20%.  So I’m throwing out some numbers out here, but you can see I just changed one of these factors can drastically alter your return on investment. *

Now, there is one other factor that people often forget, which is that when you’re looking at your investment, your investment is both the dollars you spend on the clicks, but there’s another piece.  The other piece of investment is your time.  The time it takes to make a sale.  And so I like to calculate investment as cost per click and conversion rate and close rate and then I also like to add your time.  And so I calculate time as hours per sale divided by your hourly rate.  I know you’re saying, “Which is that?  I don’t have an hourly rate.  I’m paid in commission.”  The truth is that you do have an opportunity cost for your hourly rate, and you’re just – just for example, let’s just say that you can go get a job at Starbucks, and Starbucks will pay you hourly $10 an hour.  So now you have an hourly rate.  That’s what it could – that’s what you could be making if you’re doing something else.  So there is a cost associated with not working at Starbucks or not taking an hourly job, and so you have to factor that into your equation.  And the reason why is because you could see a situation where you might find a positive ROI in a campaign but it might take you 20 hours to make a sale.  And so if your ROI is 40% but it takes you 20 hours to make a sale, you could still be losing money.  You might make $30 per 20 hours, which is just simply not profitable, even though technically it is.  So you need to calculate in your hours per sale and your hourly rate, work these into the equation so that you’re factoring in your time, as well as cost of the AdWords campaign.

*So that’s ROI.  I know it’s kind of technical, but it’s really critical that you track it, that you get a spreadsheet put together or some way to keep track of your return because if you don’t, you will lose your shirt on pay-per-click campaigns.  If you do, you can figure out where things are going wrong and you can then really focus in and optimize those things and turn pay-per-click into a huge money-maker for you. *

That’s what I’ve got today.  I will have more tomorrow.  If you have any questions about this, I know it’s technical, just send me a comment and I’ll see if I can help you out.  Thanks, and I’ll be back again.