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November 30, 2006

Paid Search - The Margin Perspective

By Account Deleted

Search Engine Marketing finally has arrived and is putting a major dent into the online marketing budgets of many businesses both large and small. In fact, a study done by SEMPO (Search Engine Marketing Professional Organization) in December 2005, states that in North America“SEM was a $5.75 billion industry in 2005, and will grow to $11.1 billion in 2010.

Now, after we digest these astounding numbers, we then need to consider, that with all of the best practices and techniques out there that are being applied to SEM campaigns, are we focusing enough attention on: (1) How much are we willing to spend to get a customer? (2) How much money are we willing to spend to sell a specific product/service? Let’s expand this a little further.
Paid Search Marketing has evolved into a multi-faceted business channel where complexity, relevancy and structure is considered a best practice. During its infancy stage, we were measuring success based simply on clicks/increased traffic and CTR%. Then as the paid search engines matured, they started to supply its users with the all kinds of nifty “bells & whistles” that allowed us to try and get the most out of our budgets. But with all of the tastes and scents that the engines have been throwing at us, isn’t it time to take it even deeper to find that “right mix” that really makes sense from a business perspective.
Once we have a good understanding of what the businesses’ achievable profitable ROI% is, we can then turn our attention to Analytics programs such as Omniture’s Search Center, where we track the ROI% performance not only by search engine, but at the campaign and even keyword levels of each engine. However, quite possibly, a super-optimized campaign filled with high CTR% & ROI% could in retrospect, be affecting your businesses profitability if there is not a predetermined and defined (CPA) Cost-per-acquisition and Cost/Margin for each and every product or service.

In many instances, online businesses have been so consumed with real-time performance based analytics and metrics, that we tend to get “blind-sided” by identifying acceptable acquisition costs to decide whether the product or service is “worthy” of Paid Search. A real solution to all of this, is to know your goals, understand your CPA for each product/service, set a modest daily budget, closely monitor ROI% at keyword or campaign level, and begin to understand the ever-changing mechanics of your SEM campaign as well as the behaviors of your potential customers.

Here are some common perceptions: One would think that driving high volumes of online traffic makes up a successful SEM Strategy. Another would classify success by not only driving a high volume of qualified traffic, but also achieving high CTR% and tracking ROI % performance at the campaign and keyword levels for each engine. But even then, it is enough?
Well, it’s not a matter of performance as much as it is online marketers getting into the habit of thinking and looking at Cost/Margins and CPA for each and every specific product or service. Based on these factors and these factors alone, we can then decide whether it even deserves to spend money on driving qualified traffic, regardless of the traditional success factors such as CTR% and ROI%.
In the scheme of things, as paid search budgets and competition continues to increase year after year, the idea of looking at the fundamental “offline” business practices definitely deserves deep consideration, especially as other search marketing tactics such as SEO become more difficult to win.


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