| In 2006, according to SEMPO, the search engine industry organization, marketers spend $8 billion in paid search, up about $3 billion from 2005. More and more marketers are looking to paid search as a source to generate incremental revenue. And every day another industry expert tells us how to use paid search to its best advantage; although these experts do not necessarily make the same recommendations. Additionally there are several industry standards for measuring the effectiveness of paid search. |
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| However, none of these metrics give a picture of whether paid search actually improves profitability or not. First and foremost, Marketsmith recommends: |
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 | Click rate/increased traffic |
| Cost per click |
| Cost per keyword |
| Conversion rate |
| Total online sales |
| Cost per conversion/acquisition |
| Return on advertising sales |
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| However, none of these metrics give a picture of whether paid search actually improves profitability or not. First and foremost, Marketsmith recommends looking at paid search results by contribution to the bottom line. If a term does not cover its advertising cost, cost of goods, fulfillment, and returns/cancels, the term will generate a net loss for the company. Ultimately, every marketing source/program irrespective of channel should be able to show a net positive contribution, if not immediately, then over time; and if it does not, the strategy for continuing to buy the term must be reviewed. Look at terms by search engine since the same key word will perform differently on Google, Yahoo, MSN, Ask, and others. |
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| As we have seen with our clients, web traffic reports are the best source of which key words will be most effective for a company. Words on which visitors have searched organically that brought them to your site are obviously words which draw traffic. Also the internal site search terms are informative with respect to what visitors are looking for. Do not think that you need buy thousands of key words. Buy what works for you. |
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| As noted in MarketingSherpa's 2007 Benchmark guide, about 50% of marketers currently bid on 200 or fewer key words; another 22% bid on 201-1000. When buying so few words, it is not difficult to track the performance of each one individually and make judgments about its effectiveness. We recommend a monthly assessment of each term's overall performance. |
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| Once you have determined the viability of terms, it is useful to develop a strategy for maximizing the performance of the key words. And by looking at a term's relative performance and specific characteristics, it may be possible to create a strategy which will, in fact, turn an unprofitable key word into one with a positive contribution. |
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| Here we have taken a page from the Boston Consulting Group; they use a matrix to evaluate a company's portfolio of businesses or products determining a strategy based on a combination of market growth and relative market share characteristics. We have adapted this matrix to a company's portfolio of paid search terms. We see conversion rate akin to relative market share and number of clicks a potential measure of market growth. We have used the BCG definitions of the words that fall into each quadrant. And we have developed a strategy recommendation for the key words which fall into each of the sections of the matrix. A company needs to create this matrix for each of the search engines on which it is buying key words since there will be differences among them in performance. |
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| Stars have high number of clicks and high conversion rates. For our clients, we have observed that these terms tend to be branded and product specific. Searchers know exactly for what they are looking and it is something they want. Performance needs to be monitored on these terms, to make sure they deliver a positive contribution, and then to see if there is seasonality to their results or if their performance begins to fall off. If conversion decreases but the click rate remains high, these terms can fall into a negative contribution quickly. But until a change is observed, a company should be willing to pay for these terms. We would recommend testing to determine what positions (1-5) perform most effectively for the key word. At the same time, we recommend working to improve search engine optimization to shift some paid traffic to the free organic listings. |
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| Cash cows are terms which have a lower number of clicks but also a high conversion rate. As with Stars, these key words tend to be branded and product specific. For these terms the strategy is similar to that above. These are most likely staple items in a company's merchandise mix, with a relatively constant demand over time. Again, we encourage beefing up search engine optimization to support these terms through natural search. |
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| Question Marks are terms with high clicks and low conversions. Because there are many reasons why there could be a discrepancy between the rate of clicks and conversions, it is important to spend time to understand the dynamic with each of the words in this group. With a high number of clicks, these are obviously terms which are of interest to searchers. However, with the low conversion rate, searchers are not finding what they want when they click on your site. You want your messaging to attract both interested and qualified visitors to your site. Questions to answer to understand this phenomenon include: |
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| 1. | Are you using the right key words? |
| 2. | Is the messaging in your listings targeted to searchers whom you would consider qualified? |
| 3. | Is the combination of key word and messaging specific enough to let the searcher know if clicking on your listing will in fact provide the solution s/he is seeking? |
| 4. | Is this a category of product which a consumer is likely to research before purchasing so that overall conversion rates will be low, irrespective of the company.? |
| 5. | Is this a category of product that a consumer would prefer to see and touch at a retail store before purchasing? |
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| Dogs are key words with a low rate of clicks and a low rate of conversion. These terms are most likely generic with a lot of competition. Unless they show a high contribution or you feel it is important for competitive reasons to be part of the listings, you should give serious consideration to eliminating these words from your portfolio. |
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| Industry statistics estimate that 40% of web visitors who visit a site by clicking on a search listing come through paid search. With an estimated 40-50% of all sales coming through the Internet, as we have seen with our clients, it is important to have a strong paid search program. But it is also critical that it be coordinated with your search engine optimization program in order that they work in tandem and paid search does not cannibalize natural search. We will address this coordination in a future newsletter. |
