Generating Revenue Forecasts using Google AdWords

Posted by Richard Stokes on June 13, 2006 to

One of the more vexing problems with launching websites, whether they be associated with marketing campaign launches or entirely new businesses, is getting an accurate estimate of Google traffic. It is nearly impossible to create a reliable revenue forecast without this information, so getting it is of utmost importance to the internet marketer.

Some of the ways that marketers attempt to estimate traffic include using estimates from the Overture keyword tool or WordTracker. However, these estimates correlate very poorly with Google traffic. Even clickstream services that utilize actual search data from ISPs suffer in that they only generate an estimate of actual PPC clickthrough traffic ... not the total search impressions available for any particular keyword. In a perfect world, Google would provide this information ... but today they don't.

Fortunately, there is a way to get this information using AdGooroo and a test campaign on Google. The advantages of this technique are that it is fairly simple and very reliable. The disadvantage is that you will need to set up an operational Google campaign targeted at some of the high-traffic, broad keywords applicable to your new campaign.

The steps are as follows:

1. Set up a new Google AdWords campaign targeting one or more broad keywords. For instance, if you will be selling baby strollers, then "baby stroller" and "baby carriage" would be good keywords to use. You do not need a lot of keywords in this step - just a few major ones.

2. Set your bids at a level where you will get between position 1-3 placement. Google has tools to help you estimate the placement you'll get for a particular bid level.

3. Let your ads run for 1-3 days. You aren't concerned with the number of clickthroughs that you get. Instead, you want to know how many impressions Google has showed your ads. During the first couple of days with a new campaign, they will generally give you a high placement, but not a lot of the total traffic.

4. While your campaign is running, set up a keyword group in AdGooroo targeting the same keywords. Make sure that you have selected Google along with the country you've targeted in your AdWords campaign. For most of our customers, this will be Google US.

5. After three days, pause your campaign. Take the total number of impressions for your campaign and divide by the average coverage for your campaign that AdGooroo reports. Then divide by the # of days that you ran your test campaign for (1, 2, or 3). This will give you a reliable estimate for the traffic you can gain from these keywords.

Example: For the keyword "Cancun", we recorded an average of 986 impressions per day. Our average coverage as reported by AdGooroo was 16.10%. Dividing impressions by coverage gives an average daily traffic of 2,041 searches on this keyword.

6. The number above represents the daily search traffic for the broad terms. Use these modifications to come up with reasonable estimates for other traffic sources:

* [# above] x 1 = traffic available from niche terms (ie: fully built-out keyword list)
* [# above] x 1 = total traffic available from Yahoo
* [# above] x 2 = natural traffic which can be expected after 12-18 months of continuous SEO effort

7. Finally, you can use these numbers as the basis of a revenue and profit forecast, by incorporating other such statistics as clickthrough rate (use 1.0-1.5% as a reasonable estimate), sales funnel conversion estimates, average cost-per-click, and so on.

The estimates above will have error associated with them. As a general rule, you should base your business model around the above revenue estimate discounted by some factor, typically 30-50%. Thus, if your revenue forecast indicates a potential $190,000 in annual profits, you should plan on achieving peak revenues between $95,000-$133,000 ($190,000 discounted by 50% and 30% respectively).