Applying the Principles of Economics in Paid Search

When I was a university student, one of my mandatory courses was economics. Fortunately, I met an excellent professor who led me to enjoy his lecture. Although I did not get a good grade, the principles of economics I learned from him have helped me even at work today. Consider these four examples of how the principles of economics can be applied to paid search.

1. Relationship between keywords and budgets
While working with paid search specialists who have only one to three years experience when creating a new account for a new campaign, I found that they usually just pull out a bunch of keywords from keywords tools like Google Adwords. They seem to think they could cover more search queries from potential visitors if they can include target keywords as much as they can. Is it true and do you think it can increase the performance?

I illustrate a simple graph to explain the relationship between the number of keywords and the amount of budget. Actually, even if you have thousands of targeted keywords for your own campaign, it is useless if you don’t have enough budget to spend all of your keywords in a day. If you can’t pick up some core keywords to recommend to client, you may not understand the meaning of each keyword or due to lack of experience.

2. Relationship between budget and targeting
It also happened from the client’s side when I met to discuss new paid search campaigns. Usually, they want to cover the target area as much as they can and tend to defer making a decision of the target market when asked. However, it does not depend on their decision, it has to align with their media budget.

The size of consumers in Korea is similar to America; we can’t cover all territories in the U.S. and hardly expect that will bring good performance with the same media budget in Korea. It is very crucial to weigh against the overall efficiency of your campaign. If your budget is not efficient at the beginning stage, we need to seriously adjust the media budget by geo-location, day of week, and time of day.

3. Relationship between targeting and CTR
CTR (click-through rate) is one of the key elements of measuring the success in paid search campaigns – it is calculated by the number of clicks divided by impressions. By improving an ad’s CTR, we can benefit from lowering CPC. There are various elements to increase CTR, but the key factor is the coverage of market.

Even if you change the ad copy with A/B testing, you’ll face the unpleasant situation when your market coverage is too broad, which includes geo-targeting, keywords match type, and character of keywords like short term or long term. I would advise you to start from narrow segmentation to wide area for higher CTR.

4. Relationship between traffic and the length of keywords
Whether you like it or not, we can see a pattern for the paid search campaign after the initial stage. If your approach is well done, you can see your account stabilizing. Then, you should carefully review your top 20 keywords that can drive most of the traffic to your site or the top 20 percent of keywords.

From one of my old projects reviewing other paid agencies, I found 54 percent of traffic comes from the top 20 and they account for almost more than half of monthly media budget. It is a very common scenario for a paid search marketer to only control the overall bidding optimization with CPC through an automated tool. It might not be a wise strategy that one person controls lots of paid search campaigns without enough time to review one by one.

But, you should also know that we might be ignoring the meaning of each keyword to visitors while only caring about the sum of figures in the monthly reports. Because the meaning of each keyword is different as well as the objectives of clients, we need to approach keyword selection by considering the purchasing cycle of each keyword. If we just talk about the numbers in general instead of reviewing each keyword due to poor time management, then your money spent in paid search is in vain.

The nature of search marketing does not lie in the figures. It requires comprehensive interpretation.

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