Readers often ask me, "How do I know how much to spend in paid search?" or "How can I justify my investment in paid search?"
Today's column will address both of these questions in kind.
There are five key steps to forecasting and justifying the optimal spend for your paid search campaign.
Category landscape and audience behavior. The first step to justifying investment in paid search is to make sure your audience is inclined to search for your products or services online.
Now granted, we see searches take place in almost every type of industry or category you can think of, but clearly the search engine plays a much larger role for certain businesses and industries than others. For example, people frequently turn to the Internet to undertake health research. In fact, the Internet – and in particular search – is often where they start their quest for answers. Therefore, pharmaceutical and OTC brands have a pretty clear-cut case for investing in online marketing.
On the other hand, in some B2B industries, for example, with businesses that make "few and far between" big-ticket item purchases (think industrial equipment), search engines play a less important role than more traditional "personal" sales tactics. The brand building and lead generation may more frequently take place in-person at various tradeshows or vendor meetings.
So, you should scale your allocated investment in search accordingly based on the "uptake" or importance of search engines for your target audience.
Competitive analysis and benchmarking. The next step is to understand the competitive environment.
Senior management cares what their competitors are doing, and sometimes the easiest way to secure funding is to highlight a potential competitive threat.
Undertake some research to understand what your competitors are doing as it relates to search marketing. Leverage free tools such as SpyFu to get a sense for your competitors' approaches and spend levels. Use comScore Marketer or other subscription intelligence tools if you have them. At minimum, do some good old-fashioned manual research – type in your target keywords into the search engine, and see who or what sites come up. See how frequently your competitors are coming up in the top results for the most popular phrases. If they're constantly appearing at the top of the page no matter how many times you refresh, they are likely maximizing their budget in paid search.
Finally, pit your own presence against theirs – is your site coming up just as frequently? Are you lacking in visibility vis-à-vis your competitors due to restricted budgets? All the more justification to ask for additional funding.
Market sizing. Once you're armed with the competitive angle, it's time to get down to business and the numbers. Proposing a search budget of $1 million doesn't make sense if your audience is only made up of 50 people.
Look at the volume of search terms in your target list to get a sense for the actual business opportunity. How many people are actually searching for what you're selling? Let's say you manage marketing for a local gym and you want to know how many people are searching for gym memberships. Go to your keyword research tool of choice – the Google Keyword Tool is a great, free one – and type this and related terms in. See what the average monthly search volume is in your specific city/region. This will give you a sense for how many potential users are actively seeking the service you offer.
Traffic and CPC estimation. Now of course, even if you find 20,000 people in your greater metropolitan area looking for gym memberships (and related terms), the likelihood of you capturing 100 percent of the traffic via your sponsored search ad are fairly slim. It helps to look at average click-through rates to get a sense for what proportion of the traffic you can expect to capture. We usually go with an estimate of 2 to 5 percent. So let's say if 20,000 people are looking monthly for terms related to gym memberships, we can realistically capture 5 percent of those searches, resulting in 1,000 clicks to our site.
Next you will want to assess what the average cost per click is on keywords in your category. Again, your trusted Google Keyword Estimator can help you get a sense for the CPC range required to achieve top three positioning. (Note that typically these estimates are somewhat inflated – if you have a campaign with strong quality scores, you can probably chop about 20 percent of those estimates.) So let's say you net out at about $2 per click for simplicity's sake. That would mean you'd want a monthly budget of around $2,000 to secure those clicks.
ROI forecasting. So now you have your required budget determined, you just go to your management and ask for it, right? Wrong. Any bottom-line driven manager will want to see some sort of analysis of "what is it going to get me," also known as ROI. Essentially, if you plan on investing $2,000 per month, what is that going to net in new gym memberships?
If you haven't ran a paid search campaign for this company yet, it will be hard to know what kind of conversion rate to expect, but you can opt to show a range of various scenarios (conservative, likely, aggressive) to help buffer your forecasts. For illustrative purposes, a quick ROI calculation could look something like this:
1,000 visits to the site for a cost of $2,000 per month
Estimated 5 percent of people will set up an appointment to tour the gym: 50
Estimated 30 percent of those who come to the appointment will sign up for a membership: 15
Cost of annual membership: $300
Total revenue generated by 20 new memberships per month: $6,000
Projected ROI: 3.0
And what business person can turn down a well-thought-out plan with a positive ROI?
And there you have it – your five easy steps to planning and justifying your search marketing investment!
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Julie is a member of the senior strategy team at Klick Health, focused on online media and digital. Julie initially established and led the media practice at Klick for several years, relinquishing leadership to expand beyond media into additional digital tactics. She brings a wealth of experience in search marketing, digital media, and all facets of digital strategy to bear, helping Klick's clients develop innovative digital solutions. As her role has evolved, so have her contributions to ClickZ, which she has been writing for since 2007.