Getting The Most From Paid Search In A Difficult Economy
Cost consciousness. Budget cuts. Workforce reductions. Hiring freezes. We’re beginning to see signs of the economic Armageddon everywhere. What a great time to be a search marketer! No, really. I’m serious. Because whatever the economic climate or business objective, search marketing is flexible enough to support it. Don’t get me wrong, I feel your pain. […]
Cost consciousness. Budget cuts. Workforce reductions. Hiring freezes. We’re beginning to see signs of the economic Armageddon everywhere. What a great time to be a search marketer! No, really. I’m serious. Because whatever the economic climate or business objective, search marketing is flexible enough to support it.
Don’t get me wrong, I feel your pain. For search marketers, this can be a very frustrating time. We are programmed to build and grow programs rapidly and repeatedly. We get up in the morning and immediately start thinking about ways to increase our spend and revenue. For the past five years, the ascent of paid search as a legitimate direct marketing channel has been nothing short of meteoric. The fact that budgets across the industry are now seeing slower growth, and in some cases a plateau, has many search marketers squirming in their seats. When we’re not allowed to grow programs at an alarming clip, we feel like caged animals. So what’s a search marketer to do?
Relax, people. Paid search tactics can support any business strategy you (or your manager) can dream up. Let’s take a look at some different paid search management tactics and what kind of business strategies they support.
A pre-flight checklist
Before we dive headlong into the world of paid search optimization, let’s make sure we’ve checked a few things off our list. If you’re going to run paid search in this climate, you better have some way to measure your results. If you don’t, then stop reading this, and go put tracking tags on your website now. Because in this day and age, if you can’t measure it, it may as well not exist. And if you can track your results, you must have some notion of what makes sense for your business. For example, what should your target return on investment (ROI) be? How does it support your business? Now, if you’re still with me, let’s continue. We’re going to look at two paid search strategies that are on opposite ends of the volume and profitability spectrum. Which one feels more like your world?
The portfolio management approach
This is the most common strategy and the one search marketers often prefer. In this model, the marketer manages the paid search program to an overall average profitability metric, such as return on ad spend (ROAS) or cost per acquisition (CPA), by blending the performance of more profitable brand keywords with that of higher-volume, more general keywords. You’ll want to use this strategy if high volume is your goal and budgets are flexible or limitless. Advertisers with this profile will often say things like “get me all the subscriptions you can, as long as the average CPA is under $100.”
Going for incremental profitability
With the portfolio management approach, advertisers acquire customers at different CPAs. Brand terms are typically the most profitable, with generic keywords much less so. In other words, your last customer was much more expensive than your first, and certainly more expensive than your portfolio average.
Rather than taking this approach, some advertisers choose to manage to incremental profitability and impose a ceiling (CPA) or threshold (ROAS). This is a much more efficient, conservative strategy and leads to lower, more incrementally profitable, conversion volume. An advertiser with this profile may say something like “I don’t want to pay more than $100 for any customer.”
One note on the incremental approach with regard to paid search, marketers need to determine at what resolution they want to manage to profitability metric. By keyword? Ad group? Campaign? The more granular the approach, the smaller and more marginally profitable your program will be. I have seen SEM programs that, if switched from a portfolio management to incremental profit approach would lose half their orders and 80% of their budgets if managed on a keyword-by-keyword basis.
So what’s best for you?
The answer is that it depends on your business strategy. Early stage or aggressive businesses should clearly favor a portfolio approach, while more conservative companies may prefer to manage their profitability on the margins. In good economic times it’s almost always better to go with a portfolio management approach. During tough times, you may want to trim the fat off your paid search program and run a bit leaner. Most advertisers are somewhere between the two extremes, and if they’re good, they can get just the right mix to optimally support their business.
How we manage our approach at Yahoo
One of the trends I’ve noticed is that as time goes by, paid search is becoming better integrated into the marketing mix. This means that paid search is one of many marketing channels being used concurrently by marketers at any given time. In this light a bias toward an incremental approach to managing paid search has merit. Multichannel marketers may prefer this approach because it enables them to answer the question, “If I had another dollar, where would I spend it?”
At Yahoo!, we’ve found that there is a fairly wide spectrum between a pure portfolio approach and a strict incremental strategy, so that as the business pendulum swings we can adjust our tactics to support the changing landscape of the business. Accordingly, we can then make smart decisions on how to move budget among channels and between businesses at any given time.
As you get ready for this economic rollercoaster ride, fasten your seatbelt and hang on tight. This one might make you queasy. But rest assured, search marketers, times like these, however difficult, provide yet another opportunity for us to once again prove our value to our managers and our companies. As hard as it may be to recognize, this time of stress is actually a golden opportunity for search marketers to shine.
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