Google search ads pull in the best customers

Posted by Kate Taylor

Google search advertising costs around 80 cents a click - but brings in $10 per click, say researchers.

A Washington University team has come up with a new way of measuring the effectiveness of Google search advertising, taking into account not only online sales, but goods or services purchased off-line as well.

And, they've found, customers acquired through Google search advertising spend more than customers found through other channels.

"The conventional method normally just looks at online transactions, that are one-time transactions," says associate professor of marketing Ying Xie.

"But in our method we propose that we should think about the customer’s lifetime value. In their lifetime, they could be an active customer, repeatedly making purchases. The cumulative amount of these purchases — that’s the profit stream we should take into account."

By merging web traffic and sales data from a small-sized US firm, the researchers created an individual customer-level panel tracking all repeated purchases, both online and off-line - as well as whether or not these purchases were referred from Google search advertising.

And customers acquired through Google search advertising had a higher transaction rate than those that came to the company in other ways.

"This is very important for the advertising industry," says Tat Chan,  associate professor of marketing at Olin Business School.

"And also I think it is important for Google itself. They want to really show their customers, their business clients, how effective search advertising is."

Google’s total advertising revenues in 2010 were $28 billion, up from $439 million in 2002.