I was working with an auto dealer who was determined to market his way through these tough times and asked for some help in evaluating his current Google AdWords ad campaign. What we found was fairly typical in the campaigns of those new to paid search.

Restructuring a Pay-Per-Click Campaign

Here’s a example of how the campaign was structured. We changed the name of the company to Acme to protect our client’s anonymity and well, because the Three Stooges had a lasting effect on all of us.

He had  a pretty good list of keywords and phrases (below is a partial list).   A search on any of these terms would return an ad for his business. The operative phrase is “an ad”—he only had one ad to support all these keywords.   So regardless of what people were searching for, they saw the same ad.

Microsoft’s Bing.com is out of beta and initial stats show interest was high and in alignment with Microsoft’s goal of becoming the number two search engine within five years.

Launched as a decision engine as opposed to a search engine, Bing’s initial focus is on travel, shopping, health, or local search. If the concept of being a decision engine translates to users, those of us in search marketing might discover a higher proportion of users are further down the purchase funnel, ready to buy. Bing has tremendous implications for pay-per-click advertisers as searches at this end of the funnel could lead to better conversion rates and require reallocating client keyword portfolios. Time and testing will tell. But for our clients in the travel and local search space we are considering diversifying their spend. If the early trends hold Yahoo will need to respond to survive.

Google added another twist to organic search with the launch of Google Squared. Google Squared creates a table of facts about searched topics. The results can be shared, saved, or reorganized. The results are still inconsistent  but if  integrated into everyday search it’s position at the top of the results page presents challenges as well as opportunity. Combined with Google Suggest and that personalized results are becoming more of a factor as Gmail users grab more email market share, it’s becoming increasingly important to have a diverse and integrated online strategy that is specific to your business.  Those relying on five year old generic SEO will be lost and have a difficult and expensive time returning to a useful level of visibility.

A little less publicized development but important  to bloggers (what isn’t) is Google’s new policy regarding the “no follow” attribute.  No follow was commonly used to prevent comment spam and also to sculpt page rank by keeping search engines from pages that were not relevant in traffic building efforts. We could sculpt the rank of our sites by re-focusing the link strength to other pages.  Here are the details from terrific post by Mike Levin and Mari Assefa on the 360i.com blog. This changes has a lot of people upset but it makes sense as the new policy puts the focus back more on quality content. It’s a welcome idea, in my “can it ever be humble enough” opinion.

Finally Google has given yet another terrific set of tools to those focused on local search. The Local Business Center unveiled new data that can help measure the marketing impact of local search. Along with click-throughs and impressions uses can now see the top search terms used to find you, how many times Driving Directions have been requested, and which zip codes the driving directions originated.

Spring cleaning is not  just for the garage, especially around my house.  This is a great time to pull out your search engine plan (you do have one right?) and throw out your old ideas and misconceptions.

In some instances profit isn’t the only metric that matters; sometimes it isn’t even critical. It’s important to understand the specific goals for your campaign and the associated success metrics. On occasion we have clients whose only goal is to be at the top of the results. Position is all that matters. Your budget is going to based around achieving top position, profit be damned.

Other clients first begin stating they want to maximize sales and mention metrics like highest traffic, most conversions, return on ad spend and highest profit margins. While certainly an achievable and sometimes desirable strategy, none of the metrics factor in overall profit. Traffic doesn’t equal conversions and conversions don’t necessarily equate to profit. Return on ad spend is tricky for newcomers to understand, especially those who have been bombarded by salespeople pushing return on ad spend as ROI. But return on ad spend only factors in sales-not profits from those sales.

For many a good place to begin is a strategy based around highest profit or for those to whom it’s relevant, lifetime value of the customer. You can choose highest profit within a set budget of go for all the profitable sales available. Cash flow considerations and length of sales cycle can help with these determinations. Determining goals and understanding your customer acquisition costs and lead conversion rates will save a lot of money and give you a better understanding of how pay-per-click can be used in future campaigns.

To maximize profit you’ll need to determine some customer acquisition benchmarks:

» What a new client is worth;

» Your gross profit

» Lifetime value of a customer

» % of that you’re willing to reinvest in marketing to acquire more

Next you’ll want to set some targets based on website behavior.

» What % of visitors take the desired action-e-mail, phone call, submit lead form etc.?

» How many that take that action actually become clients?

Now you can begin to make an ROI estimate based on profitable sales.

For example:

» Your average sale is $200.

» A customer makes on average 2 purchases a year.

» Your gross profit is 65%.

» Your gross profit dollars are $390 ( $195 per transaction x 2 transactions a years)

» Of the $390 in profit you are willing to invest 35% to acquire a new customer.

With this information you can determine a starting maximum cost per click.

Your maximum acquisition cost is your profit multiplied by the percentage you are willing to invest to acquire another customer. Multiply that by your conversion rate (visitors to customer, not leads) and you have a good starting pint to determine your maximum cost per click, one that doesn’t eat away at the profit goals you set.

In this case:

Conversion rate (2%) X % of gross profit willing to reinvest (35%) gives you a maximum cost per click total of 2.73.

Next get traffic and cost estimates. The operative word is estimates, they are not predictions!

Let’s say that for the keywords you’ve selected you can expect to get 500 clicks in one month and you have determined your conversion rate is 2%. If you don’t know what your conversion rate is be conservative and use 1%-1.5% until you have gathered some historical data.

If you receive 500 clicks at a maximum cost per click of $2.73 with a conversion rate of 2% you will have acquired 10 new customers at a cost of $1365. With an annual profit of $390 per customer these 10 new customers will return an annual profit of $3900 from your month’s investment.

Here we were focused solely on how to factor actual profits into bid costs. I haven’t address things like ad copy, keyword selections, the effect of ad position on CPC and conversion rates, bid management or other nuances of successful paid search marketing campaign management. Remember that paid search can get people to knock on your door but your website or landing page has to convert them to clients.

Next time we’ll discuss how minor improvements in conversion rates can yield major increase in profit and how you can achieve them.