Back in early November I wrote a short post titled When Pay-per-Click (PPC) is a Bad Idea. As of this morning, about five months later, this article is still the most popular page on my site. One of two things is likely the cause: 1) many small companies are considering investing in Pay-per-Click and having doubts, or 2) many small companies are already investing in PPC, and second-guessing their decisions. This followup post will hopefully address both situations. Just so you know, the small company I currently work for falls into category #2. Here is why.
This past week I sat down with three members of the marketing team to review our Pay-per-Click stats. Our PPC approach has always been pretty straightforward—for the past few years we have been running eight different PPC ad sets per month, for eight different products. The budget for each ad set is $500 per month, for a total monthly Pay-per-Click spend of $4,000 (8 PPC ad sets x $500 per month = $4,000). Although we have always been able to monitor both Clicks and Spend, at the beginning of 2009 we added the ability to track actual purchases (Revenue) made from PPC ads. This was our first meeting since revenue tracking was made available, and prior to the meeting we had no reason to believe our Pay-per-Click ads weren’t working. Following is a summary of our findings for Q1:
- One ad set was running at break even ($1,400 in revenue from $1,500 spent); and
- Combined revenue for the other seven ad sets was approximately $400 TOTAL.
To put it another way, as a company in Q1 we wasted just over $10,000 on Pay-per-Click ads that weren’t resulting in sales. At this point, the decision was simple: we left the one PPC ad in place (the one that was breaking even) and redirected the remaining $3,500 per month into other marketing efforts.
After months of analyzing and researching this issue—along with the painful and expensive lesson outlined above—I am more confident than ever that Pay-per-Click advertising is simply not a good idea for small companies. Not only is it mandatory to have the technology and the know-how to measure each dollar of revenue generated (not an easy task for a small company), but as I mentioned in my November post, Pay-per-Click is not a good value. The fact is, the entire pricing model is based on competitive bidding, which means PPC is the one marketing method where companies can be absolutely guaranteed to pay market value for each and every click. And once you factor in competitors, tire kickers, college kids working on research papers and people who click on things because they have nothing else to do, companies actually pay slightly LESS than market value for PPC traffic. Small companies need to spend their time looking for opportunities to generate the most traffic at the LEAST cost, not market rates.
And finally, if the information above doesn’t convince you that Pay-per-Click dollars are wasted dollars, check this out: it’s a Heatmap of the Google Home Page from EyeTools.net. Note the “F-shaped” hot zone at the top left-hand corner. Unless you’re willing to pay a premium to have your PPC ads show up above the first search listing (the hottest zone on the Google Home Page) there is a good chance most people aren’t actually seeing them. Which means any ‘branding’ benefit you might be getting from having Pay-per-Click ads displayed in the sidebar are probably fictional as well.
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Author: Eric_Rudolf (76 Articles)
Eric Rudolf is Director of Marketing for one of the fastest-growing professional development and training companies in the world, as well as a featured small business writer for LegalZoom.com and RainToday.com—a major marketing and sales portal operated by the Wellesley Hills Group. Eric can be followed on LinkedIn or Twitter.
April 1st, 2010 at 6:29 am
Hi Eric,
Some interesting thoughts here – I feel that your main issue, and a very common one, is spending money without tracking the results!
Once you did manage to put this in place you could easily see where the issues were with your campaigns. In a lot of cases it pays to have a professional company looking after your account – working on making improvements & tracking the results. However, don’t work with anyone that only reports on “hits” or “traffic” – always report on ROI (and how that fits into your business).
This isn’t just a shameless plug
but I do feel strongly that your experiences may put other people off trying PPC. This is not to say it works for everyone – you need a good offering & website too!
Cheers
Ben
April 1st, 2010 at 2:03 pm
Hi Ben:
Thanks for taking the time to write. My biggest concerns about PPC are the same concerns everyone else should have:
1) PPC is not a good marketing “value” for small companies, because by definition with PPC and its keyword bidding process, companies literally pay Market Value for every click. In order to achieve significant growth, small companies need to find marketing opportunities where they are paying significantly LESS than market value.
2) After you factor in the researchers, college students, bored web surfers, competitors and potential employees who click on PPC ads every day and have no intention of buying anything, PPC actually costs several times MORE than the market value referenced in #1 above. I read a study a few months back which conservatively estimated that 85% of all PPC clicks were either fraudulent or unintended. After almost 10 years of sitting on both sides of the PPC fence (as an advertiser and an Affiliate marketer) I have no doubt this number is accurate.
Thanks again for writing. Sorry we don’t agree—but it’s still fun to debate it
- Eric -
December 27th, 2010 at 6:58 pm
A very late response (found this article via a search) – but you left out a key variable here: price point. If you’re a small company selling low priced product, then yes, PPC can be a crapshoot. However, as a small company that uses PPC (about $1K/month) to advertise our services business, I’m confident that it is worth it. We sell projects that are $50-100K on average and so one sale per year is break-even and two sales are profitable. It is a very important part of our marketing and sales.
December 27th, 2010 at 10:27 pm
Hi Bill:
Thanks for the reply, and I can see your point to a degree . . . but the focus of the article was on finding marketing channels that are a good value, and PPC is rarely a good long-term value. If your company is truly ‘ahead money’ on PPC, market forces dictate that eventually your competitors will a) figure it out, b) drive up the price of the ads, and c) ensure that your company does no better than break even in the long-term. It’s the model PPC was built around, and eventually it will catch up with your company as well. Thanks for writing, and I wish you continued success–you guys have a great site!
- Eric -
January 6th, 2011 at 4:14 pm
Eric,
I’m late reading this as I just found your blog after you followed me on Twitter. (thanks for the follow). Your post seems to be oriented to B2C businesses with very quick sales cycles.
We have not done much PPC ourselves, but I do realize that it’s important to set appropriate expectations for the campaign.
For companies that have a sales cycle longer than a few days, PPC should be attracting leads who then come to the website and consume more information. The PPC offer should give you the opportunity to collect their information. Then you can nurture them over time by supporting their research and helping them navigate through the early stages of their buying process. Then, when they’re ready, they convert – but the conversion event may be days or months down the road. If you’re only doing last click attribution, and you assume that the PPC ad is the single point of conversion that takes a visitor from cold lead to closed sale, then you’re probably missing opportunities to convert leads that are at the early stages in their buying cycle.
The trick is to attract the right kind of leads in the first place. That’s the subject of a whole other conversation.
January 19th, 2011 at 8:35 pm
Even later reading this
I think it depends on the industry sector, competitiveness of that sector, and the target market.
Sure on the most competitive keywords it’s likely to make little commercial sense for a small business to get involved in a bidding war with their bigger competitors. But if there niche, and they can target there ads with sufficient granularity (perhaps using geographic limiters), then the balance tends to shift.
And good link to the Eyetracking stuff
Later
A lot of small businesses are still discovering the internet (even at this late stage), and if there in a competitive sector, stand next to no chance of being high up on the google rankings for their preferred search terms. PPC gives them that lifeline.
Sure, if it’s a low value, widely targeted, non-repeat product their offering – little benefit in PPC as the click might cost more than the margin.
February 9th, 2011 at 8:47 am
PPC certainly is getting more and more expensive. My keywords can cost up to $20 for a click. But, doesn’t the “value” of those clicks (as you’re arguing) really depend on the conversion rate of the business’ website and the Life-Time-Value of that customer? If I have a high enough LTV and conversion that I can get above break even on PPC, then PPC is a veritable money machine I can pull the lever on all day long.
I think the more pointed challenge for small businesses is to actually have good on-page conversion and to actually know the LTV of that customer.
February 9th, 2011 at 11:58 am
Has Pay-per-Click really gotten so expensive that it needs to be justified with a “Lifetime Customer Revenue” model? To me, this sounds like a concept Google invented to make PPC sound more attractive. Here’s a simple example: I pull a $10,000 print ad for my CRM system. One person responds, and spends $10,000—$5,000 up front on the CRM system itself, and another $5,000 over the next five years on services and add-ons. Did I break even on my ad? Not hardly. Unless, of course, I don’t value ANY of the time, money and resources I spent keeping the customer happy enough to spend money for five more years. My point? The “Lifetime Customer Revenue” model completely ignores the fact that in some businesses (especially yours) you need to spend a great deal of time and money keeping your customers happy once you find them. Assigning “Lifetime Revenue” to the PPC ad that initially attracted a customer gives absolutely no credit to your company’s sales, marketing, customer service, and product development efforts.
And, I would be extremely careful about referring to PPC as “a veritable money machine I can pull the lever on all day long.” If this statement were true you would be retired by now, and probably writing a book titled “How to Turn PPC into a Veritable Money Machine.” If, of course, this book hadn’t already been written a dozen times.
Thanks for writing, and good luck to you–people running unfunded startups don’t get nearly enough credit for what they have accomplished.