Next month, I’m going to be speaking at SMX West, talking about one of my favorite topics, managing PPC campaigns at big companies. To be honest, I’m pretty passionate about this stuff and I have a lot to say on the topic. I’d like to use this space to add some detail to the presentation I’m going to be delivering next month at the conference.
This month, I’ll cover some background on how we think about PPC management at Yahoo!, deep-diving into topics such as valuation for PPC and making in-house vs. outsource decisions for PPC. Next month, right around the time of the conference, we’ll move more into optimization, planning, reporting and budget mobility. Here we go!
Many people are surprised to hear that Yahoo! runs search marketing campaigns on behalf of our web assets. After all, isn’t Yahoo! one of the biggest properties on the ‘net, with hundreds of millions of users worldwide and significant brand equity in the space? Why would we bother with search marketing at all?
It turns out that Yahoo! engages in search marketing for precisely the same reasons that everyone else does – it’s quite simply the best thing since sliced bread, and it gives us the most profitable method of acquiring and engaging people across businesses and countries.
To that end, we run a variety of acquisition-focused programs that leverage PPC, SEO, and Affiliate Marketing to drive incremental profit to the company. In this column, I’m going to stay narrow focusing on PPC campaigns.
At any given time we have multiple PPC campaigns running across businesses and around the globe. In the US alone, we might be running campaigns for assets like Shopping, Travel, Autos, Web Hosting, Domains, Merchant Services (Yahoo! Stores), Messenger, Browser products, Toolbars, Fantasy Sports, advertising services, even brand campaigns! Multiply this across regions and you have a veritable buffet of PPC programs for your indulgence.
To make matters more complex, nearly all of these assets have different business models. Web hosting is a subscription business focused on small- to medium-sized enterprises, Messenger is a free consumer download, Autos is fueled largely by CPM revenue, and Shopping is a comparison/research site where users come in, search around, and leave.
I could go on and on, but the message here is that the added complexity arising from having multiple business models makes it more difficult to make intelligent business decisions when budgeting, planning, and executing across all these businesses.
For example, if you had an extra dollar, on which business would you choose to spend it?
To help us answer these questions, we have a finance group that sits right next to us, whose responsibility it is (among other things) to build valuation models for all our assets where we’re spending marketing dollars.
Valuation, as you’ve heard me say before, is the key to establishing a ‘level playing field’ when managing PPC (and other marketing channels) across businesses.
Valuation models can come in all shapes, sizes and flavors, but the principles behind valuation are consistent. Simply put, you’re trying to answer this question: Given the revenue stream a customer provides my business, what is that revenue stream worth to me today?
The answer to this question can be as simple or as complex as you want to make it. At Yahoo!, since we’re sitting on huge piles of data, we lean toward the complex. We have valuations for many different businesses, by channel (SEM, Affiliate, display, etc.) and for different timeframes – in-session, three-month, rolling 12-month, lifetime value (LTV), etc.
The resulting dizzying array of valuations by business by channel by timeframe can be daunting, but it gives us all the tools we need as marketers to plan, forecast, measure and adjust at any time.
Which valuation method is right for you and your business will largely depend on your business itself – what stage you’re in, how aggressive you want to be with your cash, etc. I wrote a column specifically on valuation some time ago and I think it’s still worth a glance.
If you don’t have the resources to build sophisticated valuation models, fret not. Keep it simple. Use an excel workbook to build one valuation model for each business you run. If you’re unsure about your assumptions, make your best estimate. Just be sure to note your assumptions explicitly, because you’ll want to come back and validate (or change) them over time.
Once you have a notion of valuation, all you need to plug in is your target profitability metric – this usually will align with corporate goals, for example your target Gross Margin as a company might be 30% – and voila! Now you know what you’re willing to spend to get a customer (target CPA or ROAS).
In-House Or Outsource?
Now armed with your target success metrics, you have some tough decisions to make. One of the biggest questions you’ll want to answer first is whether you want to manage PPC in-house or outsource it to an agency. At Yahoo!, we use both models depending on the business’ needs.
Here’s how we make these decisions: For ‘normal’ SEM, where we have a conversion point with a static valuation, we tend to outsource. For example, our web hosting business has a single signup confirmation page, and at any given time we have a valuation for a web hosting subscriber. This makes it relatively easy to outsource.
On the other hand, we have some properties that don’t fit so neatly into this model, so we have to think fundamentally differently when managing them. Comparison shopping, for example, looks nothing like web hosting, from a PPC management perspective. In addition to the deltas in size and complexity, the revenue we earn from comparison shopping is dynamic in its very nature. People coming in to our shopping property can drive value to the company in a number of different ways, and each value stream can drive a variable amount of revenue depending on the behavior.
For example, someone may enter our shopping property and simply click on a link and leave. Or, that same user could click around, do some research, go to a merchant site, return, do more research, and eventually buy from a product merchant. These two cases look very different from a monetization perspective and must thus be dealt with accordingly. This type of situation is much more challenging to outsource, so in cases like this we generally go the in-house route.
Most companies will either outsource their PPC programs or manage them in-house. We do both because the complexity of our landscape demands it. Advertisers can succeed either way – you will need to find out what’s best for you.
Here are some recommendations to guide you down the path. If your PPC campaigns can be easily outsourced, go ahead and try the agency route – you can always pull it back in-house if needed. Agencies are built to handle the very problems you are trying to solve.
If, on the other hand, your PPC programs are either very high-volume or highly complex or both, you might consider taking on an in-house management strategy. Whatever you choose to do, make a decision based on your knowledge and experience, and please, please do not engage in a ‘bake-off’ where you’re running both strategies simultaneously on the same web asset with the goal of deciding which way to go based on your results. I’ve seen this strategy fail time and time again, mostly because PPC is not a ‘test and control’ type of environment and you’re thus much more likely to make a bad decision in this scenario.
Some final thoughts on in-house vs. outsourcing: Both strategies require a good deal of investment. With an agency, you’ll need to invest heavily in the relationship to make sure you’re getting the most out of it. I wrote a on how to get the most out of your SEM agency some time ago but I think it still holds up now.
If you choose to go in-house, you will face a number of challenges – hiring, team-building, training, and potentially technology development (if you choose to build your own tools). Each of these topics brings with it its own set of challenges, so be sure to think ahead in terms of the level of investment (time and money) that you and your company are willing to put into your PPC programs.
Next month, we’ll look at optimization, planning, reporting, and budget mobility in a big-company environment. Until then, happy searching!
Opinions expressed in the article are those of the guest author and not necessarily Search Engine Land.