What is “Opportunity Cost”?
When marketing your products or services on digital platforms, you can choose to utilize paid or unpaid advertising methods. PPC is a paid search advertising model that helps businesses to increase their visibility and attract qualified traffic. In addition, PPC delivers instant results, supports targeted advertising, and lets you control your budget. For all the benefits that this form of advertising offers, there are several factors you need to consider before launching your PPC campaign. One of them is the opportunity cost for PPC and the cost of social media marketing through paid advertising.
Opportunity cost refers to the benefits and opportunities that you forego when you pick one alternative over another. In this case, it represents the return of a foregone option when you choose to use PPC rather than another marketing channel. Every time a business invests in a marketing campaign, one of the goals is to get a reasonable return on investment. However, some marketing options will provide better opportunities and benefits than others. In a world where companies have to work with limited resources, it becomes necessary to choose the option that will deliver maximum benefits. It is important to understand opportunity costs if you are to make better and more informed decisions.
Comparing Investments
When identifying the best online marketing channels to use, businesses will consider where their target customers spend most of their time. You will also want to establish whether the channel will produce a measurable benefit. While assessing the profitability of the various options and thinking where to invest your money, you should also consider the one that will yield the greatest return. While at it, look at both the rate of return as well as the opportunity cost of the individual options. With PPC, you will be in a better position to target and retarget customers to generate sales. You will also have control over when to stop and resume your advertising campaign.
Risk vs. Opportunity Cost
Risk is used to describe the possibility that the actual and projected returns of an investment will be different, leading to the investor losing part of or the entire principal. On the other hand, opportunity cost is the likelihood that the actual returns of the chosen option will be lower than those of the foregone investment. While risk is concerned with comparing the actual and projected performance of a single investment, opportunity cost is about comparing the actual performance of two different investments. When looking to promote your business and products through PPC advertising, you should consider both risk and opportunity cost.
Advantages of Opportunity Cost
It is important to know the financial and non-financial benefits that you will give up when you choose PPC over an alternative marketing option to make it possible for you to compare different options, taking into account the limited resources available. Opportunity costs create awareness of lost opportunity, allowing you to make economically sensible decisions to ensure you make the most of resources. You will also be in a great position to compare the prices and benefits of the alternatives to determine the one that is likely to offer the best value for money. In a nutshell, a clear understanding of the potential of opportunity costs will help you make better decisions.
How Do I Calculate This for PPC?
Opportunity costs not only apply to personal and business investments but also PPC advertising. There are various alternatives that you can explore, each offering different benefits and results. When thinking about opportunity costs, most people will consider what they sacrifice versus what they gain. However, if you want to analyze what you will forgo in terms of investment, you should use a mathematical formula.
While there is no defined mathematical formula for calculating opportunity cost, the forgone benefit can be expressed as a return on investment in the following way:
- Opportunity cost = Return on most profitable investment choice – Return on investment chosen to pursue
Mostly, businesses will have to consider the available options carefully before making PPC part of their overall marketing strategy. With the limitless number of opportunity costs that exist, you should focus on these three critical areas:
Money
The cost of marketing and the return on investment are some of the important factors that businesses will think about before launching a marketing campaign. When you want to calculate the opportunity cost for PPC, you should determine how much it will cost you to advertise through PPC as well as the alternative option. You should also focus on the projected returns that the options will deliver. Once you have these figures, you will be in a better position to calculate the return on investment for each marketing channel. The result will, in turn, help you choose the best form of marketing to invest in.
Time
Apart from financial investments and benefits, you should also factor in time. Some of the digital marketing options take time. While certain options will take time to implement, others will take a while before you start seeing results. When you make a decision regarding the marketing options available, you should ask yourself what else you can do with your time. The next step would be to ask how much time you will require to run a PPC campaign compared to the alternative. Since it is clear that PPC delivers instant results, you have to establish how long it will be before the option you forego starts producing results.
Effort
Before using any digital marketing platform, you will need to familiarize yourself with the basics. The success of your marketing campaign will also depend largely on how effective your strategy is. Once you have done this, it will be time to implement the strategy as you work to achieve the desired results. This process may also involve monitoring trends and patterns as well as measuring the performance of your campaign. Since it takes a considerable amount of effort to stay on top of your marketing activities, calculating opportunity cost will involve thinking about the effort required when using both PPC and the alternative option.
When comparing options and making decisions, doing nothing is a choice you can make. Although doing nothing will help you avoid the risks involved, it also has an opportunity cost. By doing nothing, you will miss out on the amazing benefits that digital marketing platforms offer.
If you want to maximize your PPC campaign, it would be important to work with experienced marketing experts. Working with experts will go a long way in ensuring that your ads are displayed in front of your target customers.