Economics of PPC Pricing: Why Performance Deals Often Fail
Posted by Alan Mitchell in Techniques on February 11th, 2010
For a business looking to hire a pay per click (PPC) agency, cost-per-sale (CPS) performance models are great. The business pays the agency a set price for each sale, so fees are entirely based on the agency’s performance.
From a client’s point of view, this is great. There is little risk – agency fees are only payable once sales come in. Guaranteed profit!
From an agency’s point of view, it’s also great. Each extra sale is extra revenue, so an agency which is confident of its abilities to deliver value from paid search is rewarded heavily (and fairly) for their efforts. Performance-related pay creates an incentive for agencies to invest their best resources and expertise into making PPC campaigns a success for their client.
Researching cheaper and high-converting long-tail keywords, restructuring ad groups to improve relevancy and regularly carrying out landing page testing to increase conversion rate become all the more worthwhile when there’s a monetary incentive. If an agency only gets paid when they deliver sales, it is worth their time and effort to deliver sales.
Sounds too good to be true. Client risk is minimal. Agencies which perform are rewarded. Agencies which don’t perform…well they are forced to perform if they are to stay in business.
So you’ve decided you want to give performance pricing a go. But how exactly would a performance deal work? And how should you go about creating one for your PPC agency?
Economics of PPC Pricing: Why the Markup Model is Flawed
Posted by Alan Mitchell in Techniques on November 26th, 2009
Choosing a Pay-Per-Click (PPC) pricing model which works efficiently for both client and agency is a difficult process. A good pricing model should be simple, should create incentives for the agency to perform and should be a fair measure of the work and expertise involved.
One common model that many agencies use is the ‘markup’ model (also commonly known as the ‘percentage of spend’ model). If the agreed markup is 10%, and the client spends $30,000 on clicks, the client pays $33,000, of which the agency receives $3,000.
Nice and simple.
But does it create incentives for the agency to maximise profit for the client? Does it fairly reflect the work and expertise involved at all spend levels?
No.
To Deep-Link Or Not To Deep-Link
Posted by Alan Mitchell in Techniques on October 20th, 2009
Landing page selection is an art.
When it comes to choosing landing pages for paid search ads, there is only one rule which must be followed: the page must be relevant to the user’s search query.
Other than ensuring a highly relevant user journey is delivered, there are no clear rules explicitly stating how a landing page should be designed, structured and styled, nor is there a landing page formula which works for everyone. Landing pages selection is about finding out what works best for your business, products, services, target audience, keywords and ads, through ongoing testing and optimisation.
Landing page performance will therefore vary depending on countless numbers of variables, making landing page best practice ambiguous. That said, it is important to be aware of the reasoning and implications behind any landing page strategy, to enable more informed landing page selection and more insightful testing and optimisation when comparing one landing page to another.
So to better understand the issues which arise when choosing landing pages, let’s consider one common dilemma which a large number of advertisers face: whether or not to deep-link.
Intelligent Analytics for Intelligent AdWords Management
Posted by Alan Mitchell in Techniques on September 15th, 2009
All too often keywords in a paid search account are evaluated based solely on their ability to generate conversions: leads, bookings or sales. If a keyword has an unacceptable conversion rate or an unsatisfactory return on investment (ROI), it is paused or its bid is greatly reduced.
Sometimes, if conversion data is scarce, click-through-rate (CTR) is instead used to evaluate a keyword’s performance. If a keyword generates only 5 clicks from 1,000 impressions, it has a CTR of 0.5% so is deemed irrelevant. The keyword is then paused or relegated to the second page of search result obscurity.
This is not the right approach. Read more »
How Low is “Low Search Volume”?
Posted by Alan Mitchell in Techniques on August 30th, 2009
Browsing through your Google AdWords account, you notice some of your keywords are not showing due to “low search volume”. Hovering your mouse over the speech bubble, the ad diagnostic tool pops up:
According to Google AdWords Help, your keyword is not showing because not enough people are searching for your keyword.
“Low search volume” keywords are keywords associated with very little search traffic on Google properties. In which case, we suspend your keyword. This state is only temporary, and these keywords will be reactivated if we find that they could start delivering traffic.
So just how much search traffic is “very little search traffic”?
To find out, I decided to count every “low search volume” keyword in an AdWords account over a 3 month period. Of the 2,823 keywords that received at least one impression, 804 keywords (28.5%) were “low search volume”. That’s over a quarter of keywords.
The 5 Benefits of Long-Tail Keywords
Posted by Alan Mitchell in Techniques on August 6th, 2009
There’s been a lot of talk about long-tail keywords in pay per click (PPC). You could say it started in the entertainment industry with Chris Anderson’s influential Long Tail article in 2004, but it wasn’t long before the concept became mainstream among search marketers.
Long-tail keywords are those low-volume, obscure, infrequently searched-for keywords that turn up in your search query reports. ‘Cheap remortgage for bad credit history’ is one example of a long-tail keyword. ‘Remortgages’ is not.
The theory goes like this:
- Long-tail keywords, en masse, can provide significant search volume (high impressions)
- Long-tail keywords have less competition than generic keywords (lower cost per click (CPC), higher click-through rate (CTR))
- Long-tail keywords are more specific than generic keywords, so ads can be better tailored to match the searcher’s needs (higher CTR, higher Quality Score, less wastage from irrelevant searches)
- People making long-tail searches are often further along in the buying cycle and more willing to buy than people making generic searches (higher conversion rate)
- These lower CPCs, higher CTRs and higher conversion rates mean long-tail keywords can be extremely profitable (lower cost per acquisition (CPA))
So are long-tail keywords all they are cracked up to be? Are they worth all the time, effort and commitment they require?
Budget Time for Budget Checks
Posted by Alan Mitchell in Techniques on July 30th, 2009
Daily campaign budgets in Google AdWords are great. You simply enter the maximum you want to spend per campaign per day, then sit back and relax, safe in the knowledge that your monthly Google bill will not cause any nasty surprises.
But despite the reassuring nature of campaign budgets and the ease at which they can control your spending, they should not be used to control your spending. Instead, cost per click (CPC) bids should be your tool of choice for spend management.
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