> The cost of pushing ads to people who already have mattresses is insignificant to capturing those that are about to buy them, statistically speaking.
This is called conversion rate and for some businesses it can be surprisingly tiny while still making that business completely viable.
I would hazard that rates in the mattress industry are almost preposterously low (<5%) but margins are so high that it doesn't matter in the slightest
5% is low? You mean that having 1/20 people buy your product after seeing an ad is a bad outcome? If I sold just about anything, I bet that having a 1% conversion rate would be a money printing machine
Click through rate (CTR) is `people clicked ad / people shown ad`. Conversion rate is `people bought thing / people clicked ad`.
For Google search ads pretty good CTR would be about 8%, and a pretty good conversion rate would be about 5%. So it’s more like 1/250 buying if you’re doing pretty well. At average costs, that’ll be one conversion for something like $40 in ad spend. More average would be like 2% and 3% so more like 1/1700 and like $70 per conversion.
(Display ads are more like 0.3% and 0.6%. So more like 1/50,000. Costs are cheaper.)
Those prices are _average_. There’s no flat rate for these—they’re an auction. So generally your higher margin items, especially in industries with higher average click/conversion rates, are going to end up with higher bids and higher costs.
A bank will pay a lot more to convert someone to a mortgage customer than a restaurant will pay to convert them. You may end up paying $30 per click for someone searching for mortgage refinancing. Assuming the same “good” search conversion rates, you’re paying $600 for the conversion at a $30 CPC. (I suspect the conversion rate on something like mortgage refinancing is probably lower.)
It’s been a few years since I was forced to live in the advertising world but (1) no it’s not a money printing machine (except for the ad networks) and in fact (2) I’ve literally never seen a directly attributable positive ROI. Mostly the gap is explained away as "well, it's building _brand awareness_". Most of the positive results I’ve seen were… questionable. Usually “you didn’t acquire new customers, you took existing ones or existing leads and funneled them into your advertising pipeline and attributed them there”. Think advertising on your own company’s name—people searching for your company by name were almost definitely going to end up there anyway.
The whole point of targeted advertisement is to avoid this. The old-school blanket approach had this issue as well, but did not promise to know if the if the potential customer had a mattress already.
This is called conversion rate and for some businesses it can be surprisingly tiny while still making that business completely viable.
I would hazard that rates in the mattress industry are almost preposterously low (<5%) but margins are so high that it doesn't matter in the slightest