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Wednesday, Jan. 26, 2011 at 8:52 am

Spending Budget on a Ticket for the Paid Search Bandwagon?

By Whitney Wilding
January 26th, 2011

With the improvement of the economy over the past year, it is not necessarily a surprise that marketing spends for online paid search have increased. According to the Covario’s 2010 Global Paid Search Spend Analysis report, in America, spending on paid search increased 23% in 2010 from 2009, and is predicted to continue to rise throughout 2011. There may be many factors involved with this continual increase, but one thing to consider is the possibility of traffic cost inflation. Basically, these days it may be costing more to get good placement as more and more businesses are jumping on the CPC bandwagon and competing for placement. Individual companies may also be investing in more campaigns than before, with increased CPC budgets also hiking paid search costs.

While we understand the value of driving more qualified traffic to your site with the intent of increasing sales, we also encourage you to consider the health of your conversion rate. Your online marketing budget will likely be better spent by first focusing on improving your current conversion rate to do a better job at converting the traffic you are already getting.

The analogy of a leaky bucket to describe your conversion process, introduced in Waiting for Your Cat to Bark, has been utilized by FutureNow many times, but it’s worth mentioning again: you can keep adding more water to your conversion bucket, but we think it makes more sense first to patch up the holes. Haven’t read Waiting for Your Cat to Bark yet? You can learn more about the book and download a few chapters on our publications page. You also can think of your conversion process in terms of numbers if you like. We’ll paraphrase an example from the book to demonstrate what we mean:

Let’s say ten thousand new visitors come to your site each month. Two hundred of those new visitors complete transactions. This means you have a monthly conversion rate of 2%. You can double the number of people who come to your site each month by spending money on increasingly more expensive CPC ads. At the same 2% conversion rate you’ll have approximately four hundred sales each month. Now, suppose you begin by first focusing on increasing your conversion rate from 2% to 4%? Without spending a penny of your marketing budget on traffic, those original ten thousand customers get you the 400 sales a month, netting you more money that can be fed back into optimization and increasing traffic.

Are you interested in learning more about assessing and improving your conversion rate? Contact us today to see how we can help you with your CRO efforts.

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Comments (17)

  1. The last example is spot on! Improving on conversion rates is the key to most digital marketing, especially paid search. Nice article.

  2. one of the best reason is behind this online world. today everyone buy or get information online. nobody is interested visit anywhere.

  3. Also a focus on less competitive keywords helps reduce cost and usually also improves conversion rates.

  4. I enjoyed this article and Chris makes a very good point. Too often people are happy achieving a small conversion rate on a popular search term.

    By doing more keyword research you may be able to identify less competitive phrases that result in much higher conversion rates and more business overall.

  5. @Jamie Fairbairn…. and don’t forget, you can focus on testing to improve the experience from those keywords, and optimize their conversion rates!

  6. It seems to me that the cost per click that Google charges knows know ceiling. Keywords (for similar position) just cost more and more each year. Maybe my businesses are just in popular/expensive niches, I don’t know. Yes, higher conversion would certainly help but if market economics are working at all, we should see click prices start to stabilize. But it appears there’s always a new market entrant who’s willing to overpay.

    Tim

  7. I find this to be extremely interesting. The numbers are outstanding. I can see the reason though. Studies show that more and more people are using search engines before making any major purchases for their households. Although search engine optimization basics are all over, only people who have been doing this for years really understand the concept and their expertise is quite expensive. This forces the new guys in the industry to dig big bucks out of their pockets for CPC campaigns to create their online presence. Really does make a lot of sense. Thanks this was a great article!

  8. definitely agree that the there an increase in the CPC and the online marketing tactics but this is reflecting due to the health of the business houses has recently been great since the 2008-09 recession. Search engine companies have smartly invested more money to get major chunk of advertising money which is invested by the big companies in many sectors.

  9. Idea is good. But increasing CPC not always helps. From my experience adding extensions and making add look biger is one way to generate more traffic. Or as mentioned before don’t pick general keywords like shop etc. and better use niche keywords with good conversation rate. But i guess time=money and depends wich is greater value to you and can just go with bluntly increasing CPC.

  10. we are thinking about reducing our yellow pages advertising budget and putting all that money towards search engine PPC advertising this year.

  11. Focusing on keyword research is an very important part. Choosing keywords smartly results in a better conversion rate and increases traffic, thus increasing business.. Nice article

  12. Too true. Businesses all go after the big score and forget all the work they’ve done so far. Getting that existing conversion rate as high as possible is the best thing to do. When it’s consistent, only then should more traffic be considered.

  13. @Akash Shastri – that may be true, but even after you’ve selected “good” keywords, there are things you can do to continue to increase your conversion rates and make your PPC dollars work harder for you.

  14. @Optometrist Reno NV – what makes you inclined to do PPC, rather than SEO, or CRO?

  15. I wonder if they factor into this that if better targeted PPC campaigns perform better isn’t that skewing the results in the first place? and therefore growth by business doesn’t reflect that.. businesses are simply getting back it more than they are doing it more.

  16. making bigger ads is not a good idea, you need to attract customer by good content and then bigger ads will help you ..

  17. We’re certainly in agreement on this. Assuming you are getting the traffic necessary to generate conversions in the first place, improving the conversion rate is much more important (and cost effective) than simply driving more traffic. Especially when more traffic is a result of PPC.

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