Here’s a pretty basic problem: Price your offering too high, and your total sale volume will be low. Price it too low, on the other hand, and your margins will be too tight. The result in either case? A low overall return on investment. But somewhere between the extremes of overly high prices and overly narrow margins is a sweet spot that will ensure the highest total return. Here’s how to find it.

Of course, I need to qualify that claim. What follows is just one way to set your search-marketing revenue goals. That is, it concerns finding the sweet spot between high traffic (with lower margins) and high efficiency (with lower total traffic). I won’t be saying anything about how to price your products: you’re the expert there. I assume that you know what your break-even point is, and that it’s relatively fixed.

As an example, we’ll use a business that sells widgets. They each cost $3 to manufacture, and they sell for $5 a piece. Therefore, the SEM break even point would be to spend an average of $2 on PPC advertising for every sale: a “Cost Per Acquisition,” or CPA, of $2.

In the last tutorial in this series, we discussed ways to find the total traffic available for a given set of keywords. Now that you know what it is, let’s see how much of it you can capture. What would that mean? Setting your goals (using Clickable’s goal value wizard) at your break-even point. That’s as much as you can spend on advertising without losing money. Once Clickable’s ActEngine(TM) has helped you tweak your keyword lists, bids, and creatives to reach that revenue goal, you’ll know how much traffic you can get with perfect efficiency. For our purposes, we’ll assume that our advertiser sold 100 widgets in the week after they reached their goal.

Perfect efficiency means no losses, but, of course, it also means no profits. Not an ideal situation. The next step is to start widening your profit margins bit by bit. You can use any increment you wish, but 10% seems like as good a place to start as any. So, in our example, the advertiser would set their CPA goal at $1.80. They might lose traffic, (but with a goal that’s still pretty modest, they probably won’t). Once they hit that goal, they can run the campaign for a week and see how they do. Let’s assume that they stay at 100 sales, with a 20 cent margin (after fixed costs), and, therefore total profits of $20.

As our advertiser keeps widening their margins, their total profits will, initially, keep going up. But then they’ll head back down. Why? Because at a certain point, the drop in total sales will overtake the increase in profits per sale. That’s the sweet spot. Stay there, and sell, sell, sell.

Does that mean your total revenues will forever be fixed at whatever you can make at this particular price point, and with the volume you can get on this particular network? Not at all. We’ve just found the sweet spot on a single network―Google. It’s time to find profits somewhere else. A good place to start would be Yahoo...

The opportunity to make money on Google AdWords is vast, but it isn’t infinite. Over the past few

If you’ve maximized your search advertising revenues on Google and Yahoo, it's time to expand