Things have changed significantly since John Wanamaker said, “I know half my advertising is wasted. I just don’t know which half.” As a marketer, you may find yourself using that excuse with traditional media, but there’s no excuse when it comes to Internet marketing (or even most forms of direct marketing).
I assume you’re looking for ways to cut the waste in your search engine marketing (SEM) budget. That raises a critical question: What would you do with the savings if you could cut your marketing budget in half?
Cutting waste is crucial, but eliminating waste is only half the equation; all it does is allow you to come in under budget. You fought hard for your budget, with a promise to drive revenue. Therefore, you need a plan to avoid spending less than you requested.
Where do you put the money you rescued? The whole idea behind marketing is leverage. They don’t call it marketing investment for nothing. Marketing investments deliver returns. By investing money in marketing vehicles where you determine, and control, your return on investment (ROI), business grows and thrives. Neglecting to reinvest money you save could be a hidden disaster; failure to reinvest budget savings is called “opportunity cost.”
Opportunity costs associated with failure to take the right action exist in all marketing, not just search and not just Internet marketing. Until recently, you still had Wanamaker’s excuse for the CEO, CMO, or shareholders if your advertising budget wasn’t effectively allocated. No more! Now there’s technology to measure the effectiveness of online advertising and marketing automation to execute on data, objectives, and vision. Make sure vision includes the foresight to understand opportunity costs.
How powerful an adversary can opportunity cost be? Let’s start with a campaign that’s position-focused in auction engines and traffic-focused in XML-trusted feed and directory-inclusion listings. As the new marketing guru with an ROI focus, you start optimizing the campaign. You spend $30,000 per month on search marketing, generating $300,000 in sales with a 25 percent margin, netting $45,000 in profit ($75,000 – $30,000). Your mission is to eliminate waste in the marketing budget, so you instruct your agency or team to find the least effective elements in the campaign and eliminate them.
The new, targeted campaign-optimization strategy includes day-parting and a feedback loop, so you achieve the sales goal of $270,000 by spending only $20,000. Same result for less? No! Your profit increased to $47,500, partially because you saved $10,000 in marketing expenses. Rejoice! It was well worth spending a few thousand on tools and staff to deliver the efficiency increase.
What would have happened if you reinvested the $10,000 you saved in refining your SEM plan? Depends how you do it. Here’s how you should: Reinvest the savings in additional venues and implement strategies to achieve your targeted ROI in your optimized campaign. The return could be accomplished by going broad (expanding keywords, listings, and engines) as well as through strategic adjustments to creative. By diligently pursuing listings similar to the optimized campaign and reinvesting your $10,000 in venues, listings, and opportunities with the same return as your optimized, lean campaign, you end up with $405,000 in sales and a $71,250 profit.
|Example Analysis of Opportunity Cost|
|Scenario||Marketing Spend ($)||Revenue ($)||Gross Profit ($)||Net Profit ($)|
|Cut the Waste||20,000||270,000||67,500||47,500|
|Reinvest the Waste||30,000||405,000||101,250||71,250|
If you fail to reinvest the budget, your company will suffer without knowing what could have been. Opportunity cost is significant. Business-to-business (B2B) marketers aren’t immune to opportunity costs. Leads generated through search marketing have a dollar value. Not knowing which leads generate the most and biggest sales and the best long-term customers result in huge opportunity costs. Opportunity cost is the cost of not doing something beneficial you could have done, in marketing — even in life.
What happens next year if you reduce marketing spend instead of reinvesting it wisely? Will it be easier to justify a budget increase? How much easier would it be if you delivered the record profit an efficient campaign produces?
Finding Additional Inventory
Good marketers (or agencies) have a responsibility to execute and maintain profitable campaigns that meet objectives. Of course, finding the additional search inventory that performs as well as your optimal lean buy isn’t easy. However, after you go broad and take advantage of auction-style inventory marketplaces, there are lots of places to buy search inventory beyond Overture and Google.
You can buy directly from portals (Yahoo, MSN, Excite/iWon, AskJeeves, and InfoSpace), via directory-inclusion vendors such as LookSmart and Business.com, and from XML paid-inclusion resellers (for larger sites). For products, shopping portals are worth a look, including DealTime, PriceGrabber.com, mySimon, NexTag, and BizRate.com.
You may want to consider keyword banners for inventory opportunities. The tools and strategies are there to help you and your agency plan, find, and execute more efficient campaigns. Data you use to eliminate waste also indicates the most efficient keywords, listings, and traffic sources.
Finding SEM Specialists
Where to start in your quest for a better search campaign that saves money and reinvests and leverages savings into profit? Lots of consultants and firms understand search marketing. SEM specialists use the best tools and strategies for greatest impact. SEM folks even get together several times a year to swap best practices at Search Engine Strategies, a search marketing conference (chaired by my ClickZ colleague Danny Sullivan). Your own industry may conduct search marketing sessions at their conferences.
Upcoming conferences worth considering: Search Engine Strategies, net.marketing, the Annual Catalog Conference, DM Days New York, and eTail 2003. I’m speaking at several of these, so feel free to email me for info.
Leverage opportunity cost to increase the marketing budget. Be prepared to demonstrate ROI in advance. Justify investment by predicting ROI based on real data. Or, use opportunity cost concepts to get internal support for hiring an agency to better manage your campaign, investing in tools for campaign analysis/management, or hiring an internal person to handle search campaigns.
Opportunity costs go far beyond search. They include your site and its content. Improved site usability can significantly improve all online marketing results. The more you spend on marketing, the more important it is to you use the power of landing page improvements.
Now that your competition has discovered SEM, and CPCs on your most coveted high-volume keyword listings are higher than you ever thought possible, the cost of wrong campaign decisions is going up. Refuse to be a 21st century Wanamaker using that hackneyed excuse. Harness information, analysis, and automation to halt waste and reinvest savings in effective search strategies for outstanding campaigns.
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