The Profit Maximising Approach to AdWords
Google AdWords and other search engine marketing (SEM) platforms afford advertisers a great degree of control over the cost of their media placements.
By being able to control the maximum cost-per-click for every keyword, this puts advertisers in a position where they are able to monitor the profitability of every keyword they are targeting.
Search engine ads are one of the most trackable marketing activities available, and if you’re running some sort of eCommerce environment then you have the potential to track the exact return on investment (ROI) each keyword is bringing.
However, this degree of reporting can lead to misinterpretation of what is a “good” keyword and what is a poor keyword.
At the basic level, a decent Analytics setup will allow you to determine that for every $1 you put into AdWords, you are getting $X back. Clever operators will have this set up for each individual keyword.
However, relying just on ROI can be a big mistake. Let’s take the following example.
Keyword #1 – “widgets brisbane”
- ROI = $4.50
- Monthly Spend = $300
Keyword #2 – “widgets sydney”
- ROI = $2.80
- Monthly Spend = $700
From the above example, we can see that “widgets brisbane” is a better performing keyword. Therefore, if you only had $1000 in total monthly budget, you would spend all of it on Brisbane (presuming of course there’s enough traffic to use that much). However, if your budgets are flexible and you can spend more if you want, then would you turn off the Sydney keyword?
The answer is no. ROI is just one factor you need to consider. The other is profit. The Brisbane keyword makes $1,050 profit per month (300 x 4.50 – 300) while the Sydney keyword makes $1,260 profit (700 x 2.8 – 700).
Turning off the Sydney keyword would make your business worse off. Obviously you should also consider the profit-margin on the actual widget itself when calculating these figures.
Now most people when faced with the above scenario, would obviously choose to leave both keywords turned on, but for some reason when this scenario is expanded to hundreds of keywords, rational profit-maximising thinking tends to go out the window.
Let’s say an AdWords’ advertiser is spending $1000 per month across hundreds of keywords, and is getting about $5000 back (a $5 ROI). Based on this good performance, the advertiser decides to increase their budget to $2000 per month, which in turn lifts the revenue to about $9000 (a $4.50 ROI).
Looking purely at the ROI figures would lead an advertiser to incorrectly assume the increase in budget has not worked, and they might drop it back. However, looking at the profit figure clearly shows monthly profit rising from $4000 to $7000.
One of the questions we are commonly asked is “why does my ROI drop when I increase my budget?”
The reason behind this is actually tied to the economic principle of the low-hanging-fruit. The low-hanging-fruit principle basically explains that in business, there are some sales that are easier to get than others, like the low hanging fruit on a fruit tree is easier to reach.
In an AdWords context, a low-hanging-fruit keyword would be something like “buy online widgets now.” If a user types this into Google, it’s likely that they already have their credit card out of their wallet and are ready to purchase. These longer, more specific keywords are also often cheaper to bid on than generic terms.
By contrast, a user searching “widgets” is not a low-hanging-fruit. This term is highly generic and it’s going to take a good salesperson (in this case a website) to convince this person that now is the right time to buy.
Essentially, this is why ROI drops when you increase your budget. The AdWords’ algorithm has a built in “low-hanging-fruit” factor that shows higher performing keywords more often, meaning when you increase your budget, you’re starting to reach for the fruit higher up on the tree.
The lesson here is that the way to assess how your AdWords’ campaigns are performing is to find the point (budget amount) where total profit is maximised, not where ROI is maximised. This simple mistake could be costing your business thousands in lost sales.
Popularity: 17%
Read MoreEmployee of the Month: Your Website
Your website has the potential to be the most profitable employee in your business, but you need to make it work hard!
This statement may have some scratching their heads, but the similarities between a business’ website and their employees makes it more than achievable.
Let’s firstly look at initial costs. Most websites cost between $5,000-$30,000 to build, which, depending on your industry, is also around the amount it can cost to recruit and train new staff.
But once you’ve recruited a new staff member, the job’s not done. In order for that employee to become a valued team player you need to invest in training, resources and time, as well as pay them a yearly salary.
This goes for your website as well. Once it’s built, you need to invest in continually improving its effectiveness. This often includes both search engine optimisation (SEO) and search engine marketing (SEM) on an ongoing basis as the website’s salary, and ongoing usability improvements as their training.
Like an employee, websites also work best when there’s an ongoing buy-in from managers, spending time actually trying to improve the work that they’re doing, rather than being left alone to twiddle their thumbs and cost the business money.
Popularity: 18%
Read MoreYahoo and Microsoft Team Up to Take on Google
With the recent news that the Australian Competition and Consumer Commission (ACCC) has given the green light to the proposed Yahoo/Bing search network deal, the question now becomes are Microsoft and Yahoo finally in a position to take on Google?
The deal struck between Yahoo and Microsoft will see Microsoft’s Bing-powered organic search results displayed in Yahoo searches whilst Yahoo’s Search Marketing program will control paid results in Bing. In essence, what it will mean is that Yahoo and Bing will have the same search results.
In Australia, Microsoft’s AdCenter program is not available, as Yahoo and Microsoft already have a deal that allows paid search placements on Microsoft search networks (Bing, NineMSN, Live, etc) to be controlled using Yahoo’s Search Marketing system. This means that in Australia, the deal does not have as major ramifications to the search engine landscape as it does in other countries around the world.
In Australia, the only real change will be in Yahoo’s organic search results, which will now be powered by Bing.
To have an idea about the implications of the ACCC’s decision, it’s important to understand that in markets where there exists an oligopoly (only a small number of firms controlling a large portion of the market), the ACCC will often step in to oppose the big players merging or striking arrangements that could hamper competition.
However, in this case, the ACCC found that the deal would be unlikely to reduce competition because:
- Microsoft and Yahoo already have a deal in Australia with paid search ads. Currently, ads on Bing are already controlled through Yahoo’s Search Marketing program in Australia, meaning the new deal did not present as much of a change to the way Australians are presented with search results when compared with the rest of the world.
- Yahoo and Microsoft’s current market share was so insignificant when compared to Google’s, the deal is unlikely to result in any additional market power.
- The deal is unlikely to reduce innovation in the search engine industry.
The ACCC’s ruling, whilst a good result for Microsoft and Yahoo, is also a bit of a back-hander, because it essentially means the ACCC considers the multi-billion dollar companies of Microsoft and Yahoo small players in the industry, and not big enough to be able to obtain any market power.
But despite the deal, Google is unlikely to be worried. Microsoft has spent millions on advertising Bing worldwide, yet despite this, has failed to grab any significant market share from Google.
As for whether Yahoo and Microsoft are now in a position to take on Google, I doubt it. Google’s massive paid search “cash cow” is funding an innovation program others can only dream of. Wisely, both Yahoo and Bing have realised the only way they can stop Google is take their search engine market share, hence dampening their massive advertising revenues.
However, this is a classic case of easier said than done.
Popularity: 23%
Read MoreOnline Customers Shop Offline Too!
With more and more businesses adding online stores or e-commerce systems to their offerings, the need to present a uniform business image is becoming increasingly important.
In the past there’s been a trend amongst many businesses to treat their online presence as a completely separate entity. However, as the Internet becomes more and more mainstream in terms of online buying, the need to make online customers feel comfortable with a brand is also growing in importance.
Online consumers expect to see a consistent brand image in order to be reassured that they are receiving the same level of service that offline customers are.
The Australian pizza industry is one market where there’s a range of approaches. Of the three major pizza chains in Australia, one provides a very slick online experience, allowing coupons to be added, pickup or delivery options specified and most importantly uniform pricing across all marketing channels. That is, the prices advertised in mailbox drops, TV commercials, coupons and online ads are all uniform.
This is a critical factor for an industry such as pizza, where traditionally phone orders have been the primary ordering method. Online ordering in an industry such as pizza doesn’t create a huge deal of cost savings over phone ordering, but it does give customers more convenience.
By contrast, one of their competitors has a scatter-gun approach to pricing and uniform marketing. Prices advertised on TV often can’t be ordered online, certain coupons are only able to used by phone and what a potential customer is faced with is a bizarre form of brand confusion whereby the same company is advertising across multiple mediums a completely different range of products.
However, this particular case is not unique. Countless businesses fall into the same trap of thinking there are two different types of customers; 1) ones that buy online, and 2) ones that don’t. The distinction is not so black and white anymore, and many customers will feel comfortable using both.
But this multi-channel shopper needs to see a certain degree of pricing and brand uniformity, or else they will likely switch to a competing provider.
Popularity: 14%
Read MoreSEO Enters the Marketing Mix
Over the last few years, those in the digital marketing space have experienced a seismic shift in the way businesses approach the web.
Whereas once the Internet was seen as the realm of IT geeks, it is now common for marketing managers to be heavily involved in the planning and implementation of online marketing activities, even to the point of learning to speak the lingo.
However, one area of online advertising has always struggled to secure its share of the marketing mix; SEO.
SEO (Search Engine Optimisation) has often been classified by businesses as being stuck somewhere between a website maintenance item and a legitimate marketing activity. That was, up until now.
Over the last six months, Reload Media has conducted a SEO Survey for business, and the results make for interesting reading.
79% of Queensland businesses surveyed now see SEO as part of their marketing mix, and only 14% of Queensland businesses have never undertaken any SEO in the past, down from 37% at the same time last year.
About this time last year, around 16% of businesses had no idea how they were positioned in the search engines, with that figure reduced to just 11% in 2009.
So whilst it appears that SEO has now become a legitimate part of the marketing mix, there’s still a way to go before it gets its fair share of the marketing budget, although the recent global economic meltdown may have helped its cause.
Popularity: 34%
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