Trying to understand the need for SEM, SEM roi and viability of biz

SEM, roi

[kirikara]

Hi,
I am putting a biz plan together for our new venture but I am looking for real life advice for SEM.
I am reading so many books, strategy, websites etc.. I am losing track of what it all means for us.

I am starting a site selling widgets in a very competitive market. I have an edge in the fact that my biz is specialized, more niche than usual market, i present my widgets in much more practival and user friendly way than on every other site inc. big players, domain name is getawidget.com (domain is an example), niche market is still big and currently recovering better than others in the same market. Low overhead, no inventory.

My disadvantages are: no control over pricing, am really just an affiliate, lots of duplicate content to weeds through and edit to make my site SEO effective, low GM%(but no inventory or expenses), big expense is marketing.

Given my low GM% on each transaction, I am wondering how the heck I can afford ppc and make a buck on it.
The usual= average sale*gross margin*conversion
brings me to ridiculously low budget for ppc and that would just be breaking even.
Right now, I am considering it more as a branding tool (gain a customer make no money but get them to know us, sign up for newsletter, do some loyalty and referral program)

But in the long term, is PPC really viable?
It seems the cost is so high vs return.

Or is this a strategy you used mostly in the early days?

What percent of your profit did you re-invest on marketingin year 1, 2 and 5? (ie: start ups years vs longer term)
How did your stratgy change over the years?
Seo in my market seems important but it would be delusional to just rely on that.

For us the importance of ppc is to grow sales and traffic so that in the long term, we can ditch the affiliate model sell direct. GM% will still be low but would probably double.

Any advice is much appreciated.
any reading advice also appreciated..

[mademetop]

I think it really depends on your market. Look at the economics. If you are an insurance company making (for example) $10K GP for each policy signed and you get a 1 in 100 conversion ration - then you can work out that you could spend $10 per click and still wing up with a mammoth profit. However, if you were an affiliate and only got $1K for each policy signed then you probably could not justify using PPC for high value keywords - however you may be able to find long-tail keywords which were only $1 per click - and, provided you were working on the same conversion ratios, would make the same % margin as the main company.

So, in answer to your overall question - is PPC cost effective - for many companies it is not only highly effective but can be a mammoth generator of revenue and profits.

However, in certain markets that are competitive and where margins are squeezed - it may not work - unless you can find keywords that come within your budget.

If my margins were so tight - I'd look for another affiliate opportunity. But that's just me :)