SEM Budget Multipliers, Part 1

Most online media are purchased based on their ability to help the marketer reach concrete objectives. These objectives may include branding, but more often than not when it comes to search marketing, the campaign goal is some kind of conversion event or behavior. For these marketers, an important concept to bear in mind is the media multiplier. Media multipliers are factors that make a media budget deliver results as if it were larger. Certain efficiency factors multiply the effectiveness of a media budget. They deliver more impact and better results with the same budget.

Before we discuss budget multipliers, be aware your search marketing budget may be too low, given search’s popularity. Many observers believe search marketing budgets should be much higher given search is the number two online activity, according to both comScore and the Pew Internet & American Life Project (PIP). Because email is the only online activity ranked higher than search in popularity, one could argue search is the number one Web-based activity, as email isn’t always handled via a browser. Consider your overall media budget and give search the attention it deserves.

Media planners, agencies and marketing departments spend a huge amount of time deciding where to spend media budgets. Once a search marketing budget is allocated, they plan the spread between engines and vendors. In some cases, marketers and their agencies would be happy to increase the search marketing budget if keyword inventory was available, and if they could meet ROI objectives. Media multipliers can help with this challenge as well.

A media multiplier is any strategy, tactic or technology resulting in an efficiency gain somewhere between the impression and the success metric (registration, order, sale, call or page visit). Media multipliers often have associated costs, either on a dollar basis for technology or human resources, or an internal resource cost due to extra time needed to execute the strategy or tactic. Generally, the costs are minimal compared to the benefit of the media multiplier. They pay for themselves through lift in media efficiency. The larger the budget against which the multipliers work, the easier it is to make costs pay for themselves.

The best way to illustrate how a media multiplier works is by example. Because larger starting budgets benefit from multipliers more quickly, let’s start with a $200,000 monthly search budget. As the holidays are coming up, we’ll use a fictitious online electronics retailer (electronics will be very hot this holiday season). Let’s have the retailer set the ROAS (Return on Ad Spend) success metric as a net contribution margin per dollar spend ratio of two to one. That means for every SEM dollar spent, the marketer expects two dollars of contribution margin. If the margin on all the retailer’s products were the same, he could just as easily use a revenue per dollar spent ratio. For this example, we’ll use net contribution margin: revenue minus the cost of each item or order.

Current Monthly Campaign Status
PPC Spending: $200,000
Total Net Contribution Margin: $400,000
Conversion Rate: (Average) 3.5 percent
Keywords: 2900
Engines: top 5 PPC engines

This campaign setup is, of course, already self-funding, but let’s look at the impact budget multipliers have on the campaign’s profitability.

Keyword Expansion: By taking the best-performing keywords and expanding them into phrases using improved creative, CPCs are lowered and conversion rate rises. This campaign could see a 10 to 15 percent lift in efficiency as a result. The $200,000 budget now delivers an additional $40,000 to $80,000 in profit. To achieve that profit through spending, you’d have had to allocate an additional $20,000 to 40,000. So, keyword expansion works better than a budget increase. Even if the agency charged $10,000 for comprehensive keyword research and selected the best to test in a phased approach, you’re still way ahead.

Change and Test Listing Creative: Listing creative can impact conversion rate. Better descriptions provide buyers with a better user experience. A 5 percent gain from testing listing creative isn’t uncommon, and 10 percent is possible, particularly with Google, where better creative gets a better position with less investment. Alone, listing creative delivers $20,000 at 5 percent. But multiple tactics multiply. That 5 percent lift also hits the expanded listings. That’s an additional $2,000-$4,000 in profit. Again, there may be an internal time cost or an external agency/freelancer/vendor cost, but it pays for itself almost immediately.

In Part 2, several more tactics, strategies and technologies that can act as budget multipliers. Stay tuned.

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