Tools of the Trade, Part II
iMedia Communications, Inc.
July 4, 2003
Marketers are pursuing paid-search marketing opportunities in droves, with Business Week recently reporting that paid search will comprise a whopping 33% of all online advertising revenues, up from 7% in 2001. But maintaining your advertising presence in this hot segment of online marketing continues to be the subject of much confusion. The biggest source of this puzzlement lies in that paid search does not fit into the "traditional" online marketing mold. So much so, the Interactive Advertising Bureau (IAB) is working with major search providers to develop terms and conditions specifically for the space.
In Tools of the Trade, Part One we looked at the foundation of a pay-for-placement program, selecting keywords, and projecting user behavior in order to formulate the initial pay-for-placement search strategy. In the evolution of your effective pay-for-placement search marketing plan, the message is important, but effectiveness measurement and appropriate spending are paramount to the long-term success of your initiative.
In pay-for-placement search marketing, your budget can change on a daily basis. Unlike other forms of online marketing, the "how much is enough" budget formula can look like a Mensa jumble. Variables in Pay-for-Placement are endless-- click costs, click rates and the number of searches make it impossible to provide an exact figure. The best way to project spending? Use a prospective keyword list, start with reviewing recent searches, and project click costs within the search sites selected and develop your plan from there. Since your program should include many paid-search providers you may need some assistance in keeping everything organized and running smoothly.
Whether you are managing multiple sites or just need some additional help in overseeing the bidding process in a single-site program, a third-party bid manager can you help you maximize your presence on paid-search sites. Since Overture seems to be at the top of everyone’s paid-search marketing list, it maintains a list of approved vendors on the site.
The biggest strengths of using a third-party bidding provider is that it enables you to save money and time in bid management in an efficient user interface environment comparing costs and keyword position performance across multiple paid-search providers. Since the ROI may differ greatly from position one to position three (200% to 300% click cost variances are not uncommon) effectively positioning your listings in this manner may well prove to be the single most cost-effective means for controlling your presence on the site. Of course there is a cost of entry with using a bid manager, but many providers offer additional a la carte, or bundled tools that help with efforts like tracking post-click activity.
An established leader in the bid management sector is GoToast which provides among other services, bid management across at least 22 paid-search providers.
I recently had the pleasure of speaking with GoToast Chief Executive Officer Dave Carlson and I asked him about the relationship with Overture. At first glance one might ask, why would Overture agree to let a third-party manage bids when it has invested a great deal in providing tools for advertisers to manage bids?
"Overture is clearly playing the long game-- allowing advertisers to focus on specific keywords consistently proven, so that over the long term said advertiser will keep the investment over writing this marketing budget off as ineffective." Carlson makes a good point. I often notice big paid-search sites touting magnificent advertiser counts but the subject of advertisers that have become disillusioned by high click costs and abandon the space remains unspoken. Stay tuned for more on this later. Of course if advertisers would just step up measurement efforts this would be a thing of the past.
Management Begets Measurement
My advice for measurement? Yes. I am always surprised to hear from search marketers, who for any number of reasons still maintain the only metric used for paid search is click costs and subsequent traffic. Maybe your Website builder has a problem using third-party measurement instruments like Spotlight Tags, or maybe the advertiser’s only sales channel is offline. Whatever the reason, ROI-tracking tools in paid search range from the terribly simple to the magnificently complicated, and one or all of these measures should live inside a paid-search program.
By far, the easiest tool to use is covered in the average middle school mathematical curriculum -- Algebra. This is what I refer to as the "quick and dirty" measurement formula because you need only the basics in business information.
Total leads (aggregate clicks) * close ratio = Total # sales
Total # sales * average sale * profit margin = Total Revenue
ROI = Total revenue divided by Ad costs
For multiple paid-search program performance comparison, you can add unique source information to click urls "=sourceoverture", for example. Beyond that, there’s signing on with your favorite third-party ad-serving group to tag purchase confirmation pages, and applying predictive sales formulas to calculate return based on the actual numbers of purchases. Providing the advertiser uses third party served post-click behavior reporting for other online ad formats, this method allows relatively easy integration with the existing reporting infrastructure. In the absence of an online purchase point, the point of contact or registration page can be tagged using the same discipline.
Bid managers are stepping up to the plate to provide a one-stop value-add for advertisers in this space as well. GoToast, for example, goes beyond average click tracking via third-party measurement tactics by allowing the advertiser to use a live Java script to bring the reporting structure closer to real-time as opposed to re-routing.
Clearly the aforementioned measurement tools do not require an advanced degree in differential calculus. They answer the immediate gratification tendency paid-search advertisers’ demand, while adding a dimension to understanding user behavior. But, what of the users who don’t make the purchase decision immediately, and moreover how much would the clicking user spend over a lifetime? This next level measurement includes a much more advanced measurement calculation, known as lifetime value, and retention.
iProspect is one of the largest search engine marketing firms in the business. It has teamed up with another big name in Web analytics, NetIQ, to offer search advertisers the ability to measure the lifetime value and retention of users down to the site and even keyword. "User behavior as it relates to search is non-linear -- a user may search for the advertisers’ term, click to the site only to return later to make a purchase", reports Dr. Amanda Watlington, Director of Research of iProspect. "Additionally, many users convert once and later return to the site to make additional purchases." In my opinion, calculating the lifetime value of a customer is a more advanced method of calculating the overall value of search click traffic and would be particularly valuable for considered, large ticket purchases.
Go Forth and Search
The cause and effect relationship pay-for-placement popularity has initiated is heavy competition in many categories driving up the cost of clicks and a declared need for strong stewardship in managing listings. If advertisers are to continue in this space, they must answer the value question as it relates to each search provider and the keywords users initiate to make a purchase decision. Although the search marketing industry has only begun to define itself as such, effectively using the tools we have available will ensure the industry keeps pumping out steam.