You may be Overspending on Paid Search

Nov 04, 2011 11:35 PM  By

In general it seems that online retailers are spending too much on paid search while under-valuing other campaigns, namely search engine optimization.

Paid search isn’t bad, and I wouldn’t recommend doing away with it altogether. But it might not be giving you the most bang for your buck, particularly when measured alongside natural search. And unless you’re looking at your customers’ full path to conversion, you’re probably giving more credit to paid search than is due.

Here’s why: Paid search results are usually the first or final click in conversions – so when you use a “last click” model (as many marketers still do), you miss out on understanding the impact of other campaigns on your customer’s choice to click “buy.”

A better approach to gauging campaign performance – and the true role paid search plays – is to measure both “assisted conversions” and “attributed conversions.”

Assisted conversions are the number of sales in which a particular campaign appeared somewhere in the path to conversion, which reveals how often that channel plays a part in delivering a sale. Attributed conversions are calculated by taking the assisted conversions for each campaign and dividing them by the total number of events in that path.

With this model, credit for any sale is divided equally between all the channels or campaigns that appeared in the customer journey, and we get a more accurate view of each channel’s influence.

SEO vs. Paid search
Let’s look at an example of this methodology in action, taken from a large (to be unnamed) online retailer.

By calculating assisted and attributed conversions over a six-week period, we found that natural search listings on non-brand terms delivered about 14 times more value than they were being credited with, and that generic paid search was given 1.6 times more credit than it deserved. Here’s how we came up with these figures.

First, we measured how many times any one channel or campaign was the last click – the number of sales with which any one channel is credited. In this example, generic SEO was the last click on 1,663 occasions and so credited with 1,663 sales.

Next, we measure the assisted conversions of every channel. This showed us that generic SEO appeared somewhere in the path to conversion of 78,117 sales.

Finally, we measured attributed conversions, and discovered that generic SEO was responsible for 23,923 attributed conversions.

With a last click attribution model, natural search listings on generic terms were credited with 1,663 sales, whereas they should have been credited with 23,923 — so generic SEO was given credit for 14 times less sales than it deserved. Using the same methodology for brand term natural search, we found that it was under-valued by a factor of nine.

Looking at the same retailer’s campaigns, we measured the true impact of generic paid search. First, the number of last click conversions attributed to paid search were 16,579. The number of assisted conversions (amount of sales in which generic paid search appears in the path to conversion) were 31,494. The attributed conversions (amount of sales in which generic PPC features in the path, divided by the total number of events in each path) were 10,345. Therefore, generic paid search was getting 1.6 times more credit than it should have.

Now, many marketers question whether it’s worth allocating budget on paid search brand terms, given that many of those clicks would have likely gone to a natural search listing. By looking at various client examples and using the calculation method above, we have determined that on average, branded paid search is 2.5 times less valuable than others might think.

More insights
As you plan your marketing budget for the coming year, here are some insights we’ve gathered from work with numerous clients, that might compel you to allocate more marketing spend to SEO:

1. SEO brand search is a strong converter – users search for brand terms when they’re close to making the purchase decision.

2. SEO generic search is the strongest non-brand campaign element – when compared to display, re-targeting and email, it has an 8.3% ratio of straight-to-conversion sales, making it a channel that drives direct ROI. Also, when a generic SEO search initiates the customer journey, the majority of searchers convert via direct navigation or SEO brand search.

3. SEO generic search is an initiator. In other words, over 91% of natural search clicks are not last events. SEO generic search has over 3X the number of first events as compared to an affiliate campaign.

Paul Cook is CEO and founder of tag management firm TagMan.