question archive A firm recently spent $100 on Google AdWords and generated 100 extra visits to the firm's website, 5 of which resulted in a purchase
A firm recently spent $100 on Google AdWords and generated 100 extra visits to the firm's website, 5 of which resulted in a purchase
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A firm recently spent $100 on Google AdWords and generated 100 extra visits to the firm's website, 5 of which resulted in a purchase. To pay for the change, they dropped the banner advertising on ESPN.com saving $1000, which also reduced the number of visits to their website by 500 and 20 fewer sales. Sales from visitors from ESPN.com were on average 25% higher than sales from visitors from Google AdWords. Evaluate the decision to shift advertising money from ESPN.com to Google AdWords
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Answer:
Google Adwords
It is important to note that $100 spend on Google Ad-words generates 5 sales.
Therefore,
Marginal Effectiveness of Advertising on Google Ad-words = 100 / 5 = $20
In other words, marginal effectiveness is 1 sale for $20 spent on Google Ad-words.
ESPN.com
Amount spent = $1000
The first point to note is that sales from ESPN.com generate revenue that is 25% higher than sales from Google Ad-words.
Therefore,
20 sales from ESPN.com is equal to = 20 * ( 25 / 100 ) = 20 + 5 = 25 sales from Google Ad-words
Marginal Effectiveness of Advertising on ESPN.com = 1000 / 25 = $40
In other words, marginal effectiveness is 1 sale for $40 spent on ESPN.com
Conclusion
The decision to shift advertising from ESPN.com to Google Ad-words is the right decision as it creates more equivalent sales (adjusted for price difference of sales) per dollar spent.
