fshovlinA wise man once said, “Companies that hack marketing budgets when they’re down will soon not be companies at all”. Well, I may not be wise, but I did say it.
Recently, Google has been focusing on profit-driven marketing. While it may be biased since they would want to educate people on how valuable their investment is with AdWords for obvious reasons (spend more!), their articles and presentations really spoke to me as someone who wants to show the true value of my agency’s efforts.
Profits > Efficiency
One of the Google articles in the link above phrases it appropriately:
To fix this tunnel vision, you need to take the time to find out what’s important to the business as a whole. If the goal is to maximize profit, great. If it’s not, talk with your stakeholders to understand why…If investors are demanding ROI efficiency, start by asking why they want to prioritize efficiency over total profit volume.
Which of these scenarios is more favorable:
- You have $1,000, and every time you spend $1, you get $5 in return
- You have $5,000, and every time you spend $1, you only get $2 in return
At a quick glance, the “obvious” choice is the first one since you get the best ROI. However, if you play it out, you end up with more profit in the second scenario.
- $5,000 return – $1,000 investment = $4,000 profit
- $10,000 return – $5,000 investment = $5,000 profit
In other words, if you’re able to be flexible on your return and budget, you can end up with more profit in the end. While we all want to win the jackpot, we would also be satisfied winning a little consistently.
How does this translate to digital advertising?
Some people may have looked at the scenarios above and said, “Well, if I was seeing a 500% return, I’d give you $5,000, not $1,000.” However, it’s not that easy. Speaking specifically to PPC, expansions and tests often come with lower margins (but also penetration into new channels and audiences!).
Perhaps your account became more efficient by pausing keywords or reducing bids. Now the client wants you to expand because they’re seeing such a great return so you’re testing higher positions or new channels. Then your ROI decreases so you begin pausing items or reducing bids. You can see what happens; it’s a never-ending cycle of optimizing, not growing profits.
Don’t get me wrong though, improving your ROI is important to growing profits, but it can often lead to leaving opportunity on the table. You may not be able afford a lower ROI or higher CPA because you begin losing money. In that case, it makes sense to keep on your path, but it’s up to us as advertisers to understand the why behind our client’s goals before we begin to come up with strategies to achieve them, or re-educate the client on what their goal should be.
Why should we tell a client what their goal should be?
Performance looks great when you’re hitting your CPA or ROI goals. You and your client will be high-fiving all the way to the bank. But then what’s next? You already cut all the fat to hit your goals. There’s only so much you can do.
As I showed in the scenarios above, you can increase your total profits and reach with a higher CPA or lower ROI target. It’s up to you to prove that to your client. Show that having a $10 higher CPA allows us to grow their account enough to offset the lower efficiency. Show that having a lower ROI can actually be a good thing!
Additionally, we’re often looking at revenue in a silo. As in, revenue generated directly from our efforts. But how much can be tied back after that engagement? Maybe a user who visited your site is now more likely to visit your store (or vice versa!). Or they make repeat purchases. Or they now refer you to their friends offline. Well, there’s no way to track that, but it’s all more revenue stemming from your campaigns.
What would you say I should do next?
Talk to your clients to clearly understand their goals, how they were developed and, most importantly, why they are their goals. From there, go back to the drawing board and see if you would recommend any changes based on your discussion. More often than not, you’d be surprised by results.
Pam Neely
Tom Whatley