To build your first SEM budget, you may first have to engage in SEM to determine volume and performance. But some forecasting is possible.
Which comes first? The search engine marketing (SEM) budget or the SEM campaign?
For many companies seeking to engage an SEM firm for the first time, the answer won't make them particularly happy.
Budgeting for SEM without actually being engaged in SEM is a real challenge. No buyer's guide to SEM firms or vendor Web sites can explain the work your own site requires before it's search-engine friendly.
Pay-per-click (PPC) search advertising is even more difficult to forecast without being actively engaged in a campaign. You must test to see how many clicks to expect per day at what CPC by keyword, to net what return on investment (ROI).
Before merrily ringing in the New Year, expect to roll up your sleeves and get your hands dirty if you hope to develop a fairly accurate SEM budget for 2004. There are no silver bullets in this process, just some guidance and insight into pricing, costs, and a few rules of thumb on how to use them.
An SEM budget has three primary components:
SEM professional services are similar to any other professional services you might purchase. The outcome is determined by level of expertise multiplied by time on task. Assume lower prices mean less expertise, less time on task, or both.
SEM firms typically bill monthly. They manage your PPC search advertising and paid-inclusion spend. For core professional services, which include complete SEO, expect to spend from $90,000 to $240,000 per Web site annually for a full-service SEM firm or $50,000 to $90,000 for a solo consultant or smaller SEM company.
Vendor choice will likely depend on the size and sophistication of your organization, the size and complexity of your Web site, and reporting needs combined with campaign goals. Larger organizations tend not to work with solo practitioners or smaller SEM firms that can't scale.
Conversely, smaller clients are often turned away by big, full-service firms (the local convenience store may want Deloitte & Touche to audit its books, but Deloitte isn't geared or priced to serve its needs).
A good way to begin a dialogue with a few SEM vendors and compare their offerings is through a request for information (RFI), as opposed to the dreaded SEM request for proposal (RFP), which may be of little value.
Paid inclusion is a service some search engines offer that enables Web site owners to submit their URLs directly to a search engine's database. Paid inclusion is offered by Inktomi, AltaVista, AlltheWeb.com, and AskJeeves/Teoma. Fees come in two varieties: CPC and cost per URL submitted. Though your SEM firm will manage these submissions, you must budget this line item separately.
Smaller Web sites and sites that submit fewer than 250 pages may be eligible for programs priced at $25 annually per submitted URL. You're free to submit all or some of your Web site's URLs.
Sites with over 250 submitted pages are often required to participate in CPC programs. Expect nominal set-up fees, with clicks billed from $0.15 to $0.75 each, depending on the type of Web site/business you operate (e.g., the travel category is more expensive than the bookstore category).
How much to budget for paid inclusion? Determine the number of pages to included in a search engine database. If a 1,000-page site has only 300 pages of valuable real estate, estimate an average of one to two clicks per submitted URL per month per engine program (some do better, some worse), at $0.15 to $0.75 (or try an average $0.35) CPC. If you're submitting fewer than 250 pages, budget $25 annually per submitted URL per engine program.
PPC Search Engine Advertising Programs
LookSmart serves up its directory-style listings to MSN searchers and bills advertisers on a CPC basis. MSN just announced plans to drop LookSmart in January. Until then, advertisers can take advantage of the holiday rush and buy up this inventory as budget and ROI allow, based on the following pricing: $0.15 CPC for the first 5,000 clicks; higher for clicks 5,001 and up. The higher rate card is referred to as category-based pricing. It's based on the vertical market your brand targets. The costliest categories include credit/bad debt, online gaming, finance/insurance, and communications/Internet hosting at $0.75 CPC.
As is the case with any CPC budget, test to see what CTR and cost to expect.
Anticipate an increase in Inktomi fees next year. Consider it a percentage of your LookSmart allocation. Inktomi will drive the majority of MSN clicks until Microsoft launches its own index.
Google's and Overture's PPC programs are difficult to budget. You can spend as much as your risk tolerance, business model, and conversion rate allow. Prices for individual keywords are set in an open-auction model. They rise and fall with the ebb and flow of competition.
There are two schools of thought on how to set a PPC budget. The direct marketing strategy is to set a testing budget, then run a test to determine CPC thresholds by keyword and conversion.
My ClickZ colleague Kevin Lee recommends the direct marketing approach: "[Companies] should start by testing. If a company will invest in a PPC test, by the end of it you can know exactly how much to spend."
Another ClickZ colleague, Gary Stein, views the problem in terms of brands understanding the value of a click. "How do you know how much a click is really worth?" asked Gary. "I was talking with [a beverage client] about search engine marketing, and they're doing pure branding. They're happy to do it, but what is that click worth to them? It's difficult because you have to start getting to a place where you understand what intent is worth."
The reality is you need budget numbers on paper for the boss. Below are a couple of imperfect strategies, utilizing Google's and Overture's available tools:
By using these tools, you can investigate keywords and bid prices -- on Overture, at least. It's a bit more difficult to look up Google bid prices. Determine an average CPC rate across several dozen keywords and multiply by your desired traffic based on your conversion rate and ROI. Imperfect, but you will arrive at a number.
Expert PPC search advertising campaign management performed by an experienced SEM firm is typically billed as a service fee of 10 to 15 percent of the campaign spend. Consider this cost when building your budget.
For a Google budget, multiply the Overture number by at least one and a half to account for Google's higher traffic volume.
Overture's ROI calculator may be of some value in determining bid threshold. In reality, some keywords convert at higher rates than others. These numbers will change as you execute your campaign.
Important: No PPC or inclusion program gets your site listed in Google's actual search results. These search results drive huge quantities of qualified traffic for many companies.
If you're not optimizing your Web site for the algorithmic natural search results, you could be missing a significant component of your online audience. A successful SEM campaign tightly integrates PPC search advertising, paid-inclusion, and natural SEO strategies into a cohesive solution.
Budgeting for SEM is a challenge, but every financial journey begins with the first cell on the spreadsheet. Expect to adjust whatever budget you establish in the first months of the campaign based on performance.
Happy budgeting season!
Fredrick Marckini is the founder and CEO of iProspect. Established in 1996 as the nation's first SEM-only firm, iProspect provides services that maximize online sales and marketing ROI through natural SEO, PPC advertising management, paid inclusion management, and Web analytics services.
Fredrick is recognized as a leading expert in the field of SEM and has authored three of the SEM industry's most respected books: "Secrets To Achieving Top-10 Positions" (1997), "Achieving Top-10 Rankings in Internet Search Engines" (1998), and "Search Engine Positioning" (2001, considered by most to be the industry bible). Considered a pioneer of SEM, Frederick was named to the Top 100 Marketers 2005 list from "BtoB Magazine."
Fredrick is a frequent speaker at industry conferences around the country, including Search Engine Strategies, ad:tech, Frost & Sullivan, and the eMarketing Association. In addition to ClickZ columns, He has written bylined articles for Search Engine Watch, "BtoB Magazine," "CMO Magazine," and numerous other publications. He has been interviewed and profiled in a variety of media outlets, including "The Wall Street Journal," "BusinessWeek," "The New York Times," "The Washington Post," "Financial Times," "Investor's Business Daily," "Internet Retailer," and National Public Radio.
Fredrick serves on the board for the Ad Club of Boston and was a founding board member of the Search Engine Marketing Professional Organization (SEMPO). He earned a bachelor's degree from Franciscan University in Ohio.
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