The easiest source of traffic to understand is Paid Search traffic. Its simplicity and effectiveness have made it a staple source of visitors for any traffic portfolio. However, because of its inability to truly scale, paid traffic is restrictive and dangerous in the way which it can be extremely costly if not properly tracked.
Paid search traffic works by having webmasters bid on keywords that they feel are relevant to their page, and will generate incomes for them. Every time a user types in a search for that particular keyword, an instantaneous auction is held to see which webpage is willing to pay the most for the limited number of slots available.
From there, the paid links are displayed next to the organic search results, and funds change hands between the search engine provider and the webmaster whenever the searching user clicks on one of the paid links. This means that the webmaster is bidding on the value that the user’s visit to their page will generate.
From a valuation standpoint, paid search traffic is the easiest to understand. Since the traffic comes in as individually purchased visits, the cost of the traffic is equivalent to the value of the keyword itself. From there, a page can track the visitors and determine their profitability. If enough visitors convert into paying customers, the website will be profitable in its ability to arbitrage the difference between the costs of bringing users, and the revenues associated with the users that convert. This creates the conversion ratio for the page.
The trick to evaluating the value of a paid search traffic strategy is to look for a favorable conversion ratio, regardless of the cost per click. From there, we can develop the analysis by looking for opportunities to improve this ratio. This is done by split-testing ad copy to ensure that the paid links are compelling, and by diversifying the breadth and specificity of the keywords being bid on.
A popular strategy to pursue from this direction is to use keyword tools to find low-cost keywords that are related to a more popular alternative. This can be done by looking for long-tail alternatives to the existing choice, or by using synonyms. From there, the specificity of the campaign can be improved by using negative keywords to eliminate the under performing aspects of the portfolio, to ensure that the funds of the campaign are applied most efficiently.
By examining an existing paid search campaign for opportunities to improve the breadth or specificity of the keywords being bid on, we are therefore able to come up with a decision about whether to value that aspect of the asset at a premium or discount.