Sourced from Search Day
Despite the hype, being #1 in paid search results may not provide your company the desired bang for your marketing buck. Intelligently optimising a paid search budget involves far more than setting random bid prices and guessing at returns.
Why forecast? According to Brian Cavoli from Media Contacts, forecasting allows you to control your marketing spend by predicting the business impact of your keyword choices and desired positions. That is, for every $X investment, a company can predict $Y in sales.
“Businesses need a higher level of strategy,” he said. “Forecasting helps businesses make smart business decisions.”
Positioning for maximum impact
It’s no surprise that rank matters for a PPC campaign. Whether rank translates into conversions, however, is another issue.
“A number one rank is not the best strategy for everyone. Companies need to balance volume and CPA [cost per acquision] based on goals,” said Young-Bean Song from Atlas DMT.
A 2004 study by the Atlas Institute indicated that traffic drops significantly by position. There was a 40 percent decrease in click potential in Google between a #1 and #2 position (“click potential” is defined as the product of relative impressions and relative click-through rate). In Overture, there was a 20 percent drop in click potential between a #1 and #2 spot. Overall, there was a 10 times difference in traffic between the first and the tenth rank.
This information helps companies decide whether it’s cost effective to stay in a lower position, or if bidding for a higher spot would net greater click potential. Although a company may feel like they are saving money by bidding on a #4 position, the approximate 60 percent decrease in click potential in both Google and Overture could be at the expense of possible customer acquisitions.
“The top spot will drive a ton more traffic,” says Song. “The question is, does that spot convert users?”
In many cases, it makes sense to pay the additional few cents to increase rank. However, this doesn’t mean that all businesses should automatically bid for the top position. In fact, some lower ad positions may actually gain higher conversions.
Another 2004 study by the Atlas Institute found that conversion rates for low volume keywords (which are typically highly specific search terms) may actually increase at lower ranks. That is, for some search terms, the #8 position may actually gain a better conversion rate than even the topmost position. This means that marketers have the ability to lower costs on some terms without sacrificing conversions.
Forecasting PPC key revenue with keywords
Fortunately, marketers can use keyword data to help them forecast both traffic levels and costs.
“Smart forecasting is about selecting the right terms,” says Cavoli.
James Colborn from Inceptor recommended starting with a sample of 100-300 keywords for accurate predictions.
“Ensure that there are branded, generic and specific terms in your keyword sample list,” says Colborn. “Once you research your search terms, you’ll get the idea of the traffic that you’d receive.”
Be warned though, search projections are based on historical data and performance. Other factors, such as seasonality, sales performance, competition and landing page design may alter actual results. In this case, Cavoli recommended starting with a strategic approach, and refining it each week based on incoming data.
“Position as a plan, not as a process,” says Cavoli.
Marketers should start the testing process by understanding exactly what variables they are testing. Is it for ad copy effectiveness? Could the landing page need tweaking in order to gain higher conversions? Does ad placement really make a difference? Wright recommends portioning the test budget to account for various variables. When results come in, they need to be tracked and measured.
Is forecasting paid search for every company?
Some businesses, especially small-to-medium sized businesses, may feel that they don’t have time to efficiently forecast their paid search traffic. Rather than spending the time creating a list of candidate search terms and testing results, they pull bid prices out of the air and are pleased when they see conversions. This approach may be costing more in revenue than any time savings gained in a “set it and forget it” PPC campaign.
Additionally, forecasting and testing takes time. Developing a strategy does increase the time-to-market on a PPC campaign, and can be expensive to implement. And testing low-volume items, according to Wright, isn’t cost effective-it takes too long to get an accurate forecast sample.
At the same time, stepping back and creating a strategy before marketing implement a PPC campaign can eliminate many inefficiencies-and give marketers a clearer picture of expected total returns.