Budgeting for search success

Soft ocean breezes. Powdery white sand. Frosty margaritas. The bliss of a weeklong getaway in some tropical hideaway. Quality time with the family.

Okay, so what does this have to do with search engine marketing? Has this guy had one too many margaritas again?

Well, it’s simple. An exotic vacation is the result of a successful year in personal budgeting. By spending money in all the right places on all the right things during the year, the reward is a healthy sum in your bank account and money to splurge.

The same goes for your business efforts. Bold, black bottom lines that exceed goals are the result of strong budgeting and forecasting efforts that begin in September and come to life by January.

Right now, you are probably well into your 2007 budgeting process and counting each day until it’s over. But these last days really count, as the numbers are finalized and you really fight to justify your work. And for the person in charge of the budgeting process for search engine marketing, this task is complicated even more by the number of unknowns in the marketing landscape.

In your battle to budget for paid search, you are likely to run into challenges from colleagues and superiors, including some of the following:

  • Search doesn’t bring us new customers; all our orders come from searches on our brand name.

  • We have a strong organic presence on a number of keywords; it’s a waste of money to pay for traffic when we are already getting it for free.

  • We can spend less by just moving our ads down from position 3 to position 7; we can still get the same amount of search traffic and look how much money we’ll save.

The challenges are numerous, largely because paid-search marketing is an arena of infinite scenarios, and you simply cannot plan for all of them.

Defending your numbers is not the only way to win the budgeting battle. You can also take an offensive strategy with a simple question: “What if we aren’t present?”

Since the introduction of the Internet into our business lives, we’ve learned some basic things about consumer behavior:

  • People are increasingly moving to the Internet as a resource to evaluate their purchasing decisions.

  • People do not search for products or services that they do not know exist.

  • People tend to have Web browser start pages that include a search tool.

  • People have abandoned the use of the URL address box in the Web browser and rely on search to give them the answers.

Consumer behavior therefore tells us that paid-search marketing is really a secondary marketing channel — actually more like a bridge — whose sole purpose is to capture orders and leads driven by other marketing channels’ advertising dollars. Consumers are using paid search to locate the products and services they have been introduced to through advertising, word of mouth, publicity, or any other means.

To those who still don’t see the need to invest in paid search, fire back with another question: “How many sales do you want to drive to the competition with the direct mail piece or television ad you just launched?” Because that’s exactly what will happen if your company abandons search.

Building the business case

I’ve always been bemused by marketers and companies in the direct marketing and e-commerce space who approach budgeting with a top-down approach. It reminds of going to the carnival as a kid with the carnival barker who challenges you that he can guess the number you are thinking of. You pay five dollars to prove he can’t, and then you win a trinket that cost him and the carnival 20 cents. The only loser playing this game is you, as the carnie did a bottoms-up approach before his sell, while you looked at it from the top down to prove him wrong.

When others in your company challenge your paid-search budget, you should build a pro forma profit-and-loss statement and let the numbers do the talking. In the first portion of the forecasting model, determine your media costs, which can be challenging to predict if you don’t give consideration to consumer behavior principles. The formula to use here is:

[(Impressions × Click rate) × Average position factor] × Cost per click = Media cost

An understanding of how your average position affects normal click rates and impression volume is a key tool for effective budgeting in paid search. In the first part of the formula, we use average position factor, which will vary from advertiser to advertiser. To determine this factor for your campaign, you need to identify the position in page search that is most appropriate for your strategy.

Depending on the goals, some campaign strategies will aim to place ads in the top three positions, while other strategies may best be executed at an average position of 4, 5, or 6. Once you have determined the average position that best aligns with your strategy, that is your average position factor.

Click rates and impressions begin to drop off at average position 4. So if your strategy is to be outside the top sponsored-ad section, you must account for this drop-off in your forecast. Additionally, if you have strong brand recognition, it is often wise to break down your estimates along brand and nonbrand lines.

The second part of the formula is the easy part:

Total clicks × Conversion rate × Average order value = Total sales

You already have most of these numbers at your disposal from your overall Website metrics. Given that search often drives the largest percentage of Website traffic and sales, overall metrics are weighted toward your search performance, both paid and organic. The standard rule of thumb for an e-commerce site is to allocate to paid search a 10%-30% bump on your conversion rate if you currently don’t know what your paid search efforts contribute.

Once you put these figures together, you can quickly show your management team the impact that a reduction in your search budget or a decrease in your search presence will have on your bottom line.

Pulling together the numbers

There is a lot more visibility into your spend potential in paid search than may appear at first glance. While Google still claims that paid-search marketing is “invisible” and refuses to cooperate with advertisers by not providing a truly functional budgeting tool, Yahoo!, MSN, and other third-party firms deliver tools that are extremely helpful in the budgeting process. The following are some of these tools to help you in determining search budgets:

Yahoo!’s Keyword Selector Tool and View Bids Tool

These are by far the best tools on the market, mainly due to their sample size and the ease with which they can be extrapolated to other engines. The tools can be found by accessing Yahoo!’s resources section at http://searchmarketing.yahoo.com. Once there, you can search to your heart’s content for impression volume and competitive bid information on any keyword.

To make the best use of these tools in your budgeting process, the standard guideline is to multiply the number of search impressions presented by Yahoo! in the Keyword Selector Tool by three to account for Google and MSN search volume. Then use the View Bids tool to get a general sense of the costs per click you will need to target for your desired position.

With the projected release of Yahoo!’s Project Panama, a paid-listings model similar to Google AdWords, before the end of the year, we may well see the end of these tools, so use them while they last. Given Yahoo!’s understanding of advertiser needs through its portal advertising division, we hold out hope that it will continue to provide substantive tools (for free) to aid in the planning process — but there are no guarantees.

Hitwise’s Search Term Analysis Tools

At a cost of approximately $50,000 a year, Hitwise’s research comes at a steep price. While this may be outside your budget, most search marketing firms have subscriptions to the Hitwise service or that of its competitor, comScore. Hitwise provides some great tools to estimate annual growth rates for search in your industry and to help estimate seasonal shifts in behavior. It is important to remember that Hitwise numbers are sampling data only and are presented as percentages of the whole and that the tools are only for those with campaigns currently running.

Google Trends

As with most projects from the Google Labs Division, the Google Trends tool is another great idea that falls short in actual execution. You can find this tool at http://www.google.com/trends. While the trend graphs are nice to look at, the tool provides users with no scale as a point of reference from which to make judgments, rendering it somewhat useless in the planning process. Use this tool for a directional understanding of search behavior trends only, and cross your fingers that Google will start thinking about the end user before it develops any more tools.

Budgeting for search success isn’t easy, but the payoff is well worth it. While my reward for personal budgeting was a great vacation on the beach, your reward for budgeting and hitting your paid-search targets might be a big bonus, a promotion, and a salary increase. Plus you’ll be a hero to the other marketing folks in your company because your efforts will make their efforts more productive as well.

Tim Daly is senior vice president of marketing and strategy at SendTec, a St. Petersburg, FL-based direct marketing services provider (www.sendtec.com).

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