Posts Tagged pricing
WordStream last week carried out some fascinating research on Google AdWords CPC prices of different sectors. One key finding was that the finance industry carried high CPCs of up to $54.91, while other service-related sectors such as education, law and health also exhibited expensive CPC prices of over $30.00.
It’s All Relative
Since CPC prices are often closely linked to the potential profitability of a sale from that keyword, the CPC price is often a mute point. A ‘bad credit history remortgage’ could be worth $15,000 profit to a remortgage broker, so having CPCs in excess of $50.00 can deliver a strong return on investment.
On the other hand, the keyword ‘New York weather’ has little commercial intention, so keywords such as this tend to benefit from low CPCs.
While this relativity of CPC prices makes CPC comparisons across sectors rather meaningless, most PPC advertisers would jump at the chance to pay lower CPCs. So below are 4 strategies I’ve found useful for achieving lower CPCs, while still maintaining a strong conversion rate.
Last week Google announced they are offering searchers the option to use SSL when they search. SSL stands for Secure Sockets Layer, and is a method of web encryption. When using Google’s new SSL page, your search terms, web history and other personal information will be encrypted, thereby improving your privacy.
With SSL, you can search and browse in full confidence, knowing that your personal information and browsing habits will never find its way to unscrupulous third-parties. When you click on a Google link, and visit an external site, because your browsing is encrypted, the site you visit will not be able to see that you came from Google – nor will they be able to see what you searched for. Advertisers therefore can’t use your personal information to provide you with ads for things you don’t need or want.
Sounds great, doesn’t it? And the more secure we can make the web, the better, right?
It is only once we consider the implications for the web businesses that we realise the sheer importance of such analytical data. It is only when this data is threatened to be taken away, that we realise that SSL encryption might not be in the public’s best interests.
Let’s see why.
In this third post in the Economics of PPC Pricing series, we consider the profit sharing model (you might also like to refer back to the previous Economics of PPC pricing posts on the markup model and the cost-per-sale model). By looking at the cost and revenue structures for both client and PPC agency, we discover that under the profit sharing model client and agency motivations are perfectly aligned, making profit sharing a highly efficient method of PPC compensation.
Although we infer that profit sharing is sound from an economic sense, we find it does have problems of its own in terms of implementation and conversion attribution, and conclude that profit sharing should only be considered once a strong and tested relationship has already been established between client and agency.
So let’s get started.
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?
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?