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PPC Insanity - And You Thought Ebay was Costly

4:23 am on Dec 26, 2007 (gmt 0)

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As for PPC with my products, it has proven so far to be even more expensive than eBay's ridiculous fees..... but that is another story.

So let's discuss it. Great time to plan for '08.

Just did a spreadsheet on PPC advertising by about 50 of our competitors. Data came from Spyfu's fascinating info which shows MANY of our competitors spending nothing on PPC, while several are estimated to exceed $3,000 A DAY at times! The biggest spender (call him #1) blows between $4,000 and $16,000 daily, about 100 times our industry's median expenditure.

Spyfu "guesses" correlate with web visibility; #1 can be seen everywhere and has phenomenal revenue. Their profitability is unknown, but they have paid their bills for 10 years (web only) including the Dot Com bust.

#2 is an upstart probably bent on catching #1. They've had some "challenges" lately and seem to have backed way off on PPC spending.

#3 thru #10 consist of credit worthy catalog and chain store operators and some newbie pure web plays.

So PPC spending = Lots of revenue/profits, correct?
No question spending a million on PPC buys visibility. but I can't see how these huge budgets translate into profits, at least in the short run.

Our own PPC budget is modest. We employ several metrics that show we probably LOSE money on PPC. We buy PPC to even out our business, and mostly because everyone else does it.(they must know something, right?) I'm also know savvy and prosperous old timers who don't spend a penny on PPC or other web advertising such as affiliate networks.

What do you think is the motivation for spending INSANE amounts on PPC advertising? Are these big spenders visionaries or just egomaniacs?

8:47 am on Dec 26, 2007 (gmt 0)

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egomaniacs - I guess thats the answer.

Cant really see how or why it works for them unles they have a site so fined tuned or widely stock aka Amazon that the conversion rate is sky high.

Ive always had a terrible time getting PPC costs to the point where I make any money despite this im told time and time again that it can be done.

8:58 am on Dec 26, 2007 (gmt 0)

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If you think you're losing money on PPC, then lower your bids a bit and look for other ways to fine-tune your campaign.

The goal is to find the sweet spot where profits created by the new traffic cover your PPC costs, with something left over to put in your pocket.

That's easier for some campaigns than others!

I know of one PPC campaign where the clearest benefit is that the credit card that pays for the PPC accrues rewards points and the owner gets great pleasure out of cashing in the points for assorted goodies.

9:12 am on Dec 26, 2007 (gmt 0)

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If you can break-even, or close... on your ppc campaign, possible benefits might be:

picking up some return visitors that didn't buy on their initial visit.

picking up an occasional backlink.

declare your ppc as a business expense on your taxes.

9:40 am on Dec 26, 2007 (gmt 0)

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You would probably be surprised at the number of sites that break even or even
lose some on the original ppc.

Dating sites look downstream for continuing income. Other type sites will have
bee-backs or customers referrals to the sites,

All that matters is at the end of the month they show a profit...KF

6:45 pm on Dec 26, 2007 (gmt 0)

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Yes, I have always just about broken even to making a little bit on PPC on immediate sales. I do it because in my opinion people come back - they may come back even a year from now but a certain percentage does come back eventually. So you break even on the immediate sales and then make it on the back end through branding and web site awareness which is harder to track. I used to spend 40K per month on advertsing but cut it way back with more focus and always keep re focusing...PPC is great for ecommerce if used correctly and with the right mind set.
6:49 pm on Dec 26, 2007 (gmt 0)

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Wow, talk about a can of worms.

Talking specifics about PPC effectiveness without knowing the complimentary marketing plan, industry information, business history, etc. is like being a long-tailed cat in a room full of rocking chairs.

I've worked with companies that have spent $30-$60k/mo. on PPC and other that have spent $200/mo. and I can't say that I've noticed a correlation between margins.

Unless your name is Bill Gates, throwing your checkbook at a marketing problem won't do you a bit of good in the conversion department.

My opinion is.....

PPC is a marketing tool like any other that needs knowledge and support via other channels. It is subject to industry, geography, etc. If your competitors are spending boat loads of PPC and appear to turning a decent ROI you should be looking at their marketing efforts as a whole instead of getting tunnel vision on their PPC.

4:15 pm on Dec 27, 2007 (gmt 0)

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Thanks jsinger for quoting me and starting a new thread.

I have two companies that sell widgets in the same field. One is a manufacturer of widgets, the other was formed to liquidate a large pile of widgets that I got for pennies on the dollar. None of the widgets are the same, but they are in the same market space.

Company A spends 158% of online sales from Adwords on Adwords clicks. This makes sense for two reasons - 1. I have 1200 resellers listed on the site, so I know a lot of people will buy the widget from them instead of me, and I am trying to get the brand name better known. Also, 75% of the online sales are "no referral" or "organic search". While my analytics does not credit Adwords with making the sale, the total cost of all PPC campaigns equals 23% of sales. Very worthwhile in my opinion, the only wish is that I could sell more. Currently online sales account for less than 5% of all sales, most sales are wholesale orders over the phone. So for company A, Adwords is done for branding, and luckily pays for itself. Ebay and Amazon sales are next to nothing. The best converting terms for this site is the site name itself. People click on the ad even though the site is #1 for its name (a made up word). These clicks convert 32% of the time.

Company B is the liquidation company. It sells 75% of its products on Ebay, and this costs 26% of revenue for Ebay fees. Adwords costs 70% of gross revenue (of Adwords sales), with very little in the way of "no referral" or "organic" . The brand name of the product is heavily advertised, and to get to #1 would be massively expensive.

So PPC spending = Lots of revenue/profits, correct?
No question spending a million on PPC buys visibility. but I can't see how these huge budgets translate into profits, at least in the short run.

The best lesson that I can take from this is to look at PPC as one part of marketing and not the whole. Company A has thrived because of a unique made up 6 character name, and when people search for it it comes up #1. All the marketing in the real world pushes the brand name, and this is by far the most profitable keyword. Company B has fantastic pricing, by far the cheapest on the internet for its product category, and this has not guaranteed success. Because the brand is not mine, it gets lost in the internet weeds. Massive PPC spending for company B has only translated into massive expense. The PPC experience for the two companies has been very different. Surprisingly and disconcertingly so.

1:44 am on Dec 28, 2007 (gmt 0)

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We always come out way ahead of our PPC. You have to take a realistic look at a lot of things though. Profit margin on a sale, conversion rates, keyword bids etc...

It differs for each website, so it would be hard to trend. We look at the line item level instead of the site level.

2:57 am on Dec 28, 2007 (gmt 0)

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You can see conversions in PPC campaigns, so there should be no guess work involved. I think it works fine for high profit margin products, if you monitor all the time to see whats going on.

Our organization found a threshold for PPC. This worked by increasing it as much as possible and recording conversions. Then at the end of the month measuring profit. What we found was that there was a level at which profit could be made, but that just increasing advertising indefinately did not work to increase profits in the same way (assuming we were not just having a fluke bad month).

The next experiment may be to try more exposures and clicks with the ad at the bottom of the page vs. less exposures at the top, to see if its more important conversionwise to have the ad at the top or just get a visitor period.

For the place spending 16K a day, I think they would go bankrupt sooner or later if the campaign was not working as it should.

3:35 pm on Dec 28, 2007 (gmt 0)

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Excellent topic.

I think there is some amount of "keeping up with the Jones'" when it comes to PPC. I don't think there are any big secrets out there on how to use PPC to your advantage. What it does take is a well rounded knowledge of your own business, your online market space, and how to work with the tools you have. I don't care if my client's competition is willing to spend huge amounts of cash to acquire a buyer. That's there loss. Most of my clients have a business philosophy focused on building brand recognition through quality products and top notch service. They can't afford to spend huge amounts for PPC and therefore they must make a plan and stick to it.

FWIW I consider (and use) PPC like Gatorade - a high energy drink for athletes to replace lost minerals and nutrients and give them energy. I consider PPC a short term solution, unless a) you have little or no PPC competition or b) you have very deep pockets. It's up to you how you use it but it's not a good long term solution because, a) even barren PPC market places will eventually become competitive and b) it's very hard to survive as a small business when your sales are dependent upon advertising. Not impossible (I know some businesses do quite well) - just hard. I think that in order to do advertising successfully you must spend a small fortune to develop brand recognition and loyalty - but that's another discussion. For a startup business though, that kind of cash is hard to come by without a VC's help. So I use PPC as short term solution to introduce traffic to a new website, keep traffic levels up while I rework the site for organic rankings, and for short term boosts on hot items, sales, or just to irk the competition for a bit. I keep kw bids modest-low and spread the spend across a month. I'll modify the time schedules and even the days for certain ads. It really depends upon what I want to achieve.

For example, if I'm looking to get a new product in front of potential buyers, I'll create several ads, and landing pages, and then run multivariate tests on them at the peak buying times as indicated by my stats. Not peak click through times, but peak buying times (note that you must account for the time difference between the as server and you web server). If, I'm looking to experiment with an existing ad's click through and conversion rate, I'll choose to run the ad when click throughs are lower. The reason is that it's easier to see improvements when these numbers are graphed. It's also less expensive.

I don't think there is a one size fits all for PPC. Your competition may know something more about PPC than you and that's why there're willing to spend that much. I have found that most of them, however, are clueless on how to use PPC to their best advantage. The only way to be sure is to develop a plan, test, adjust, test again, and keep track of it all.

Geesh... that sounds like a lecture - sorry. :)

4:33 pm on Dec 28, 2007 (gmt 0)

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Good ideas but you guys aren't thinking deeply or long term enough. #1 has paid up to $3 per click for a product that carries an $8 markup and about 3% conversion rate. Why?

1) Increase volume to qualify for merchandise discounts. He's a reseller, btw.

2) Become HUGE in order to go public

3) Show continuous sales increases to impress investors/financiers (who always fall for that)

4) Become/remain THE industry leader (see 3) Branding

5) Special shipping deals

6) Worth mentioning again: EGO

7) Reach size where making ones own "widgets" becomes feasible

8) Put competitors out of business

9) Discourage others from entering field

10) Build huge email list. Ultimately kiss off PPC!

11) Boss still believes new customers wil buy from him always (90s dot com mentality)

12) Gain power over suppliers so they always ask "what would #1 think?"

13) Reach size to hire a team of experts (underlings) so boss can relax and company can remain in tech forefront

14) Sell advertising to others on site and in email

15) Become recognized for ALWAYS outbidding for clicks and therefore discourage PPC competition

16) Did I mention ego?

There must be another 20 reasons. Note that #1 isn't new and many of the above reasons have been discredited: #1 has more competition than ever. And value of huge email list has plummeted with all the spam.

2:30 am on Jan 5, 2008 (gmt 0)

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You did mention ego, but you forgot to mention PRIDE!

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