As announced at the end of 2009 by the Internet Advertising Bureau, online advertising recently achieved a noticeable milestone with its expenditure overtaking television expenditure for the first time (http://www.iabuk.net/en/1/adspendgrows300909.mxs).
For all digital marketers like ourselves, this was very pleasant to read, but at the same time, has come as no surprise.
Online advertising encompasses a wide range of mediums; SEO, PPC, social media, affiliate advertising, email marketing amongst others. In this blog however, I intend to concentrate on the area of paid search (PPC) and its role in seeing online advertising expenditure increase recently, despite the global credit crunch affecting almost all industries throughout the world.
So why are companies and advertisers being drawn into the world of online marketing in these tough times, more so than other forms of marketing and advertising? There are many factors that contribute to this answer, but essentially, it all boils down to accountability.
In recent times, where cutbacks are being made left, right and centre and the reigns are being severely tightened within free-spending companies (as you would you normally see in times of economic boom), it is imperative that businesses can justify returns on their investments.
In this respect, paid search is an excellent avenue to take. Put yourself in the shoes of a marketing director of a large multinational. You have your budget allocated to you for the calendar year, but you know that how this is spent will be scrutinised more than you’ve ever seen in recent years gone by. Do you pump lots of money through the traditional routes of TV or newspaper advertising knowing the sums are high and the returns are, more often than not, low? Alternatively, you could shift your focus to the internet, and in particular paid search, where you know that every penny you spend can be made accountable, down to what type of click activity it generated for your website.
For large traditional high street stores with an equally large online presence, it makes a huge amount of sense. To begin, you allocate a budget you’re willing to spend on paid search advertising. For that spend, you will not only find out how many clicks were driven through to your website and what types of keyword searches those clicks came from, but better still, you can establish which of those clicks lead to sales on the site. Combine this with Google Analytics, and you’re presented with revenue figures informing you exactly how much those individual sales are worth. Once you know this data, you can accurately assess the profit levels a campaign is returning for you, and that is where paid search stands out from the rest.
Take the following as an example;
Client X has a £3k monthly budget.
For their budget, the paid search campaign returned 7,500 clicks at an average cost per click of 40p each. Out of the 7,500 clicks, 225 sales were recorded at an average order value of £150, resulting in total revenues of £33,750.
Now, the client knows that, generally across the board, they make an average profit margin of 25% on each order.
£33,750 x 25% Margin = £8437.50 Gross profit
£8437.50 – £3000 Paid search spend = £5437.50 Net Profit
When you look at the above figures, it really is a no brainer. Of course, not all companies and industries are guaranteed to see success like this example through paid search. Other factors need to be considered such as level of competition, how well a website will convert and just how much potential traffic is out there for a particular industry.
One thing is sure though – paid search will always be fully accountable, and for that reason, it is always worth experimenting with. With the potential of gaining results like those mentioned above, you’d be crazy not to!