How to Budget SEM Into a Media Plan

At agencies and marketing departments, Q4 is a time for planning next year’s media. Media planning is an attempt to make the very best use of budgets over the next calendar year. If you’re planning a media budget for your firm or clients, this column’s for you.

The Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers recently released interesting statistics on online media and search engine marketing (SEM) growth. Two highlights: Q2 2004 total spending is estimated at $2.37 billion, up 42.7 percent over the same period in 2003. Q2 SEM spending is 40 percent of total spending, up from 29 percent in Q2 2003.

What does this mean to you? If your client or boss uses competitive spending as a benchmark to determine preliminary media allocations, it’s important to consider the dramatic trends in both online spending and increased SEM budgets.

What’s driving the surge? Simple:

  • Online media work.

  • SEM works. It catches the customer at all stages of the buying cycle.
  • Consumers and businesses are spending more waking hours online (and less watching TV, listening to radio, or reading print publications). Time spent online is 14-15 percent, up from 2 percent in 1998 (IAB data).

Budget Factors to Consider

Before discussing budgets, you may want to go beyond looking at the overall industry spend increases to focus on your specific vertical or even individual competitors. Vendors to consider when compiling competitive intelligence (for overall, paid, and organic search traffic and site-visit volume): Hitwise, Nielsen//NetRatings, and comScore.

Search marketing budgets are more difficult than banner impressions to pin down within a large site’s specific channels. Total search inventory depends on each engine’s and portal’s popularity, as their syndication partners (in the case of auction-based search inventory). If one engine gains or loses popularity, inventory can change.

This scenario occurred recently with MSN’s paid inclusion (PI) program. MSN opted out of the paid-inclusion portion of the Yahoo-Inktomi/Slurp database. Those engaged in PI experienced a significant traffic drop. Many industry experts expect MSN to go beyond the PI and cosmetic changes introduced recently by launching its own auction-style pay-per-click (PPC) search marketplace, complementing or replacing its current “featured sites” offering.

If this happens, it could seriously affect Overture inventory. AOL could up the real estate given to current Google AdWords ads, replace Google with another vendor, or even launch its own auction.

Systemic changes, such as more people coming online due to generational shifts and economic factors, will have a modest effect on overall traffic and inventory levels. The industry hopes when searchers have good user experiences, they’ll search more often. This may happen in local search. Watch for increased local keyword inventory.

When budgeting, keep in mind seasonal products or keywords, such as “bathing suit” or “Caribbean vacation.” If you request only the prior month’s keyword traffic levels, you won’t get an accurate picture of the coming year.

Competitor activity is probably the biggest wildcard when budgeting for search. Looking at current spend doesn’t tell you if the competition will suddenly get more aggressive. In some industries, keyword CPCs have tripled in two years. Could this happen in your industry? No one knows. There are no guarantees your competitor will even make bidding decisions based on a rational formula. Things may just go insane, escalating prices and bidding wars.

Contextual traffic targeting is getting better all the time. Consider opting in to the contextual sides of Google, Overture, Kanoodle, and others. Contextual traffic is billed together with pure search, so if you use contextual traffic for some campaign segments, remember to allocate budget.

Overall Recommendations

Estimate your search budget on the high side if you need a placeholder. Have a slush fund media category allocated to whatever media are performing best (on- or offline). Buffer budgets with the slush fund and estimate high. You’ll be able to hit the curve balls coming at you in the 2005 search market.

Want more search information? ClickZ SEM Archives contain all our search columns, organized by topic.

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