I never get tired of reciting these important words to my colleagues, clients, or anyone who will listen. The reason is this: after 14 years of dealing with major global brands, I still see companies and their agencies spending large amounts of money on their online and local online search programs with little understanding of baseline measurement and how to improve their programs.
The root cause of this behavior is the fact that search engine marketing (SEM) is so much more efficient than most other forms of direct-response marketing that errors and inefficiencies are overlooked and tolerated. If advertisers are accustomed to spending $50 to generate a sale, and SEM (define) delivers a $25 sale closure, they become complacent.
“Success breeds complacency. Complacency breeds failure. Only the paranoid survive” — thank you, Andrew Grove. I could not agree more. We need to continue challenging our metrics, and ensure that they are optimized to the fullest extent. If advertisers can lower their costs per sale by even a small fraction, they can gain competitive advantages. As more advertising dollars continue to transition online, additional media, keyword, and ad-unit costs will inevitably become inflated. Therefore, it’s important to know what you are measuring and its effect on the desired outcome.
We Don’t Know What We Don’t Know
I have been a student of the local search space for a long time. Recently, I have heard a lot of conversations related to the churn of local advertisers in the local search space. In short, many are trying local paid search, and many are abandoning it. So, I started to look at the available research. I was greatly surprised by a statistic I saw from BIA/Kelsey during a conference on the local digital space. During a research session on small- and mid-size business advertisers (SMBs), a study showed that 79 percent of SMBs claim to track their leads by source. Of the SMBs that track leads, 93 percent ask their customers how they found them, along with utilizing the following methods:
Source: BIA/Kelsey, Local Commerce Monitor (Wave XIII, August 2009)
A couple things about this trouble me. First, the overall statistic of 79 percent of SMBs tracking leads is aggressive by any measure. Second, advertisers may not be looking at the right measures in order to correctly identify lead source and validate media value. For example, according to the TMPDM/comScore study, on average, 46 percent of local online searchers responded to a business via telephone, the single-largest response channel. Yet, only 5 percent use call tracking and the majority utilize Internet clicks to track according to the BIA/Kelsey study. The first lesson is to use call tracking to improve an advertiser’s understanding of the value of online campaigns and reduce advertiser churn. If you want to know more about how call tracking works and how to use it, here is additional call-tracking information.
False Prophets (Profits?)
The issue here revolves around how advertisers assign and measure sales closure. Many advertisers use a simple cost per lead measurement as the key metric for their online campaigns. If you are simply optimizing to this metric, you are, in effect, saying that all leads convert equally. The simple math used to calculate the cost per lead metric looks something like this:
- X (number of leads costing $50) convert, on average, 50 percent of the time, creating an average cost per sale of $100.
Advertisers using this method may say, “Since the average profit from a sale is $125, just find me leads at less than $50.” This sets off a chain reaction of events where the agency or internal marketing folks begin sourcing leads based on the cost per lead metric without understanding inherent lead quality. I have actually seen an advertiser purchase leads from a lead aggregator that was providing the same leads to five other advertisers simultaneously. This advertiser preferred to have more of the “cheap leads” rather than increasing the budget on their own local SEM program. Once we were able to show this advertiser that an SEM program generated a 60 percent sales conversion rate versus the 11 percent rate they were getting from the lead aggregator, we were able to put the focus in the proper context. I know it sounds funny, but many advertisers are using incorrect or incomplete methods for optimizing campaigns.
The second lesson is to move beyond the averages when calculating sales-lead value, and gain a greater understanding of which media types provide the best, true cost per sale. Click for more information on determining simple return on investment.
As 2010 begins, this is a perfect time to review the methods and manners with which you optimize your local search and other advertising efforts. Start by questioning everything: assumptions, metrics, media vehicles, targeting, and keywords. If it can be measured, it can be optimized. I have yet to find the perfect program. Start improving, and, in reference to Andrew Grove’s quote above, remember:
“It’s not paranoia, if they are really out to get you.”