About two weeks ago I posted the results of one week of $10/day AdWords advertising for my web app, Preceden.

In a nutshell, I spent $72.16 and made $87, for a profit of $14.84, which works out to be a 21% ROI.

With the positive results, I upped my daily advertising limit up to $30 and let it ride.

Results

Over the 15 days the campaign ran, I spent $453.07 which resulted in 3,186 visitors to the site.

Out of those 3,186 visitors, 415 signed up for an account (about 13%). Out of those 415 who signed up for an account, 8 upgraded to Preceden Pro (1.9%) for $29 resulting in $232 in revenue. Overall conversion rate was 0.25%.

$232/$453.07 – 1 = -49% ROI

Ouch.

What happened?

Google Analytics tells me that the AdWords visitors were 80% more likely to sign up for an account and 60% more likely to upgrade. This makes intuitive sense because visitors who found the site via AdWords were looking specifically for a timeline tool. The overall site average is a lot lower because it also includes folks viewing embedded timelines, for example, who aren’t specifically searching for a timeline tool.

The difference is… visitors from AdWords cost money. About 13 cents on average. Despite their higher conversion rates at each step, not enough are upgrading for it to be profitable.  In order to break even, I would have had to have a 3.6% upgrade rate, which is almost twice what it was.

I saw a presentation earlier this week by David Skok, a VC at Matrix Partners, at the monthly Lean Startup Circle Boston Meetup in Cambridge. In it, he emphasized the importance of measuring your Customer Acquisition Cost (CAC) with respect to the the average customer’s Lifetime Value (LTV).

In Preceden’s AdWords case, the CAC is $453.07/8 = $56.63 and the LTV is $29. A poor ratio indeed.

Moving Forward

The good news is that for the last seven months, Preceden has grown organically without any outbound marketing efforts and has something like a 90% profit margin after taking into consideration the server costs.

Rather than throw more money at AdWords, I’m going to take that money and invest it in article writers via oDesk. Consider this: for $3-$4/hour, you can hire someone to write articles or blog posts. For the sake of simplicity, say it costs on average $10 for a single article. For the same $453, I could have had 45 fairly decent articles on the site about how to make specific types of timelines with Preceden (Civil War, World History, the War in Iraq, etc etc).

How many additional visitors would find those 45 articles via organic search? And how many of them will upgrade? I don’t know. But it will be interesting to find out.