Paid Search Trends: 2006 vs. 2007

We’re entering the home stretch: Christmas is about six weeks out. For many of our online retail clients, the next month and half of revenue will make or break their year. PPC impressions will soar. CPCs will rise. And SPCs (sales-per-click) will skyrocket. Most clients will see big profits from their paid search campaigns, even with higher CPCs.

For clients who’ve been with our agency for over a year, we review prior years’ data to get a better sense of when their holiday surge kicks in. Looking one or two prior years of sales data helps us stay on top of the shopping tsunami, reacting even more quickly than our automated predictive statistical algorithms would alone. Prior data also helps our robots from overshooting the holiday, avoiding all-to-common industry problem of bids being kept high longer than appropriate after holiday.

So, being knee-deep in our databases looking at year-over-year data, it seemed a good time to share some comparisons of 2006 versus 2007.

In the data which follow, I’ve restricted my focus to those clients for whom we handled PPC in both ’06 and ’07. That way, the data reflect changes in the PPC industry and/or changes in our clients’ marketing strategies, rather than reflecting our firm’s growth. I’m reporting averages (vs. medians), but the distributions aren’t horribly skewed, so these averages are reasonably representative.

Year-to-date 2006 vs. 2007 (that is, comparing January through October last year versus January through October this year), our clients were, on average, up 24% in search impressions. This isn’t a function broader keyword lists—we were obsessive about large term lists last year and are just as much this year—or of more aggressive bidding. Rather, I think this increase reflects the intrinsic growth of search, as well as the engines serving more ads per query.

Impressions went up 24%, but clicks only increased 5%. In other words, CTRs dropped, from an average of 2.1% in 2006 to 1.8% in 2007. I’m not sure if other advertisers had similar experiences. I’d love to know Google’s overall CTR from ’06 to ’07—are CTRs up, suggesting better relevance matching from Google’s ad serving engine, or are CTRs down, indicating searcher burnout on paid ads? (I’m not holding my breath waiting for Google to share the answer.)

CPCs rose 5%, from an average of $0.51 in 2006 to $0.54 in 2007. Again, our absolute CPCs depend on our agency’s advertiser mix, but I’d hypothesize this 5% year-over-year increase is in line with the overall industry. Of course, CPCs in highly competitive sectors increased more dramatically.

Conversion rates rose 8%, from 1.34% in 2006 to 1.44% in 2007. We attribute this happy situation to improvements on our clients’ websites. Strong site analytics and strong site testing are becoming more the norm among the IR100, and I think the conversion bump shows that, on average, these efforts are paying off.

Digging deeper, we characterized our long-term clients as “online pure-plays,” “catalogers,” or “brick-and-mortar store retailers.” These categories are fuzzy, as many catalogers have retail stores, and many national retail chains also have websites and catalogs. Nonetheless, we characterized each based on how they generate the bulk of their revenue.

Of the three business types, our catalog clients typically saw the smallest year-over-year change in key metrics like CPC, CTR, and cost-per-order. We’re taking this as a measure of the maturity of catalogers using paid search—many have been using paid search effectively for many years, and so on average catalogers aren’t making revolutionary shifts in budgets or strategies.

As one might guess, our national retail clients saw the greatest change in many of these year-over-year metrics: CPCs up 21%, sales up 30%, conversion rates up 35%. We watched many of our store clients overhaul their websites and increase their web marketing budgets in 2007, making their online stores competitive and moving budget from national store branding into their online groups. These aggregate stats reflect these big changes.

One of the key metrics we manage is A/S, the advertising to sales ratio. A/S describes how much of revenue an advertiser invests in marketing, so A/S is a measure of advertising efficiency and/or marketing aggressiveness. The “right” A/S target depends on a retailer’s business strategy, margin structure, and cash requirements.

Across our web pure-play clients, A/S targets increased from an average of 18.6% in 2006 to 20.8% in 2007. This is a much, much larger increase than for catalogers and retailers. Again, this statistics is computed client-over-client, year-over-year, so margin isn’t a factor. What this big change means is that, on average, our online pure-play clients bid more aggressively for sales in 2007 vs. 2006, matching my perception from client strategy meetings.

For anyone interested, we’ve also sliced our year-to-date results by Google vs. Yahoo vs. Microsoft, here on SEL in OctoberGoogle, Yahoo, Microsoft: Year-To-Date PPC Report Card), and again on our blog last week (October 2007 PPC Ad Spend: Google Jumps, Yahoo Slumps, Microsoft Steady).

Stores beefing up their sites and shifting budget to the web. Catalogers holding the line. Pure-plays getting more aggressive. And all of us poised for the upcoming holiday surge.

The next six weeks will come fast and furious, with consumers deciding the winners and the losers click by click. Buckle your seat belts, hold on tight, and best of luck!

Alan Rimm-Kaufman leads the Rimm-Kaufman Group, a direct marketing services and consulting firm founded in 2003. The Paid Search column appears Tuesdays at Search Engine Land.

Opinions expressed in the article are those of the guest author and not necessarily Search Engine Land.

Related Topics: Channel: SEM | Paid Search Column | Search Ads: General

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About The Author: sadly passed away in July 2009. His fellow co-founder of the Rimm-Kaufman group, George Michie, took over Alan's post as CEO, and is also a contributor at Search Engine Land.

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