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PPC: The Point of Diminishing Return

How do you know how hard to push your campaign? If you’re under your target CPA, surely you can continue to push the campaign?

The answer is no. By working out the point of diminishing return, you can quickly tell whether those extra sales are worth it or not. And the best part is, its so easy. In this video, Richard Ellis, Head of Digital Strategy talks you through how to do it…

Just because we’re lovely, here’s a transcript of the video…

Hi. I’m Richard. I’m Head of Digital Strategy here at WMG. Today we’re going to talk about the point of diminishing return, a really quick formula to help you work out if your campaigns are as efficient as you want them to be.

So we’ve mocked up a quick example, a couple of months comparable spend. So you can see in the first month, what we’ve got here is we’re producing ten sales around £50 a sale. So overall spend for that month being about £500.

Second month, we can see that we’ve got 11 sales and the costing is about £60 a sale. Now if we’re working to around a £75 cost per acquisition target, we can see generally as an account as a whole, that’s working fine.

Now, if we apply the math of this point of diminishing return to that, what we can see is that 10 by 50 gives about £500 spend. Eleven by 60 gives a £660 spend. So when we can actually subtract that, £660 minus £500 gives about £160 additional spend, but we know that we only got one additional sale for that. So what we can see is that we’ve gone over the point of diminishing return. We’ve gone from £75 up to £160 just by pushing the account ever so slightly harder.

So, a very simple formula. Feel free to apply it to your own account and if you want to have a chat, feel free to get in touch.