Diminishing
Returns with PPC?
One would think that the more money you throw at a Pay-Per-Click
(PPC) program, the more return you would get on your investment.
Not true.
Because Google and Yahoo (formerly Overture) programs are different,
we need to discuss them individually. Let's start with Google,
the more complex of the two. Google lives and dies by numbers
- they believe that success is merely an algorithm and they
insist on applying that algorithm to their AdWords program as
well as their natural placement programs. This means that Google
determines your ad position based on how much you are willing
to pay for a visitor AND your ad's click-thru-rate (CTR). Once
an ad has established a low CTR for a particular term, no amount
of bidding, or even rewriting the ad will force Google to reconsider
improving your ad's position for that phrase. If the term becomes
disabled at Google, you cannot get it enabled again, you will
need to change the phrase and resubmit.
So, how does this equate into "diminishing returns?"
Well, theoretically, if a company spends twice as much money
on a program, they should see twice as many visitors. Not necessarily
if it's a Google AdWords program. We have seen at least one
case where it took 4 times the amount of budget to realize only
twice as many clicks on their ads. In fact, using Google's Traffic
Analyzer tool, we were able to convey this to the client before
they spent the money. The client decided to go ahead and try
it anyway and experienced pretty much what we said they would.
Money spent had quadrupled, but number of clicks had only doubled.
(This is just one client, but we have experienced similar situations
with other clients.)
Why did this happen?
It had to do with positioning and the average cost-per-click
(CPC). To get higher positioning, which might bring in higher
CTR, the bidding had to increase substantially. In fact, the
average cost-per-click at Google rose from $1.69 to $4.01. The
average position of the ads at $1.69 CPC was 4.5 and the average
position of those same ads at $4.01 was now 2.5 BUT the click-thru-rates
had not improved even with the improved ad positions!
In addition, the number of impressions
for the ads were not significantly improved - the ads
were shown only 404 more times than the previous month (only
an 18% increase in exposure for 3.5 times the money).
What About Google's Budget Optimizer Tool?
We tried Google's Budget Optimizer tool on this account and
on other accounts. We ended up turning it off on 75-80% of our
accounts because it performed worse than our account managers
doing it manually.
Did Yahoo perform better?
Slightly. In the previous month this same client's average position
for ads was at number 1 with a CPC of $1.26 and a CTR of 3.2.
The following month, however, when they decided to increase
their spending, the average position fell to number 2, the CPC
rose to $2.19 and the CTR dropped to 2.3. This
resulted in a doubling of clicks on their ads at 3 times the
cost. The impressions were substantially increased with
Yahoo, however. In fact, their ads were shown nearly 39,000
more times (a 60% increase over the previous month). The average
CPC had not quite doubled, but the added exposure resulted in
more overall cost ($964 the previous month to $3,000+ in the
current "push" month).
Now, to get a decent ROI (return-on-investment), the client
needed to see a substantial increase in sales as a direct result
of this campaign and the average profit-per-sale had to outweigh
the cost of the ads. In this particular case, the products being
sold had enough profit margin to sustain the temporary increase
in ad spending. The client then decided to bring the ad budget
back in line with their original budget.
How do you get the best ROI on your PPC program?
Consider removing keyword phrases that are not performing well
for you - those with low click-thru-rates, unless the number
of clicks you are getting from the phrase is significant. For
example, let's say you bid on a term like 'cardigan sweaters'
and your CTR is less than 2%, but that phrase accounts for 25%
of your total clicks. In that case, you will want to keep that
term. (We consider a CTR below 2% at Google and below 4% at
Yahoo as low CTRs. ) Also, if a low CTR term is bringing in
conversions, you will want to keep it. By trimming the deadwood
from your keyword list, however, you will give the top performing
terms more exposure since the poorly performing terms will not
be eating up your budget.
Next, check the terms that are performing well in terms of
clicks but not conversions. Could they be more refined, more
specific? Research activity on new terms before implementing
them and seek out the most specific, but popular terms. Don't
forget that not all conversions happen online... check with
your sales department before removing any terms.
At Web-Kare we realize that companies have other important
things to do and one person analyzing data like this can bring
in some inaccurate assumptions. That's why we have a team of
3 professionals that analyze the data and check and recheck
the scenarios behind it to find out how best to improve exposure,
CTR, and conversions for our clients. The results of our conversations
are then relayed to the client to get his input and more research
is conducted to fine tune the program for the best ROI. If you're
looking for a professional and experienced team to manage your
PPC program, please contact us.
Internet Marketing For Industry
Issue
7 Volume ~July, 2005