Google recently released a guide to profit driven search marketing. As insightful as this might have been, the dense prose made me feel like my head was going to explode. After spending a good hour sifting through acronym-laced business jargon, the penny dropped. The general concept is actually nothing new – in fact, at Zelst we have been encouraging our clients take this kind of approach since day one – it’s just that we have not been describing it in as many words.
Here’s my (hopefully more intuitive) guide to profit driven search marketing, or as we might put it, ‘intelligent, integrated online marketing’.
Introduction: Efficiency vs. Profitability
The Digital Age has had a profound effect on the marketing environment. In the space of just two decades, we have gone from door-to-door, written and telephone sales to search, email and social media marketing – barely pausing for breath along the way.
The traditional metrics used by businesses to measure success have subsequently become old hat. And in spite of the ever-expanding range of analytical tools at our disposal, many marketers continue to base the success of their campaigns purely on individual measures of efficiency, such as revenue, cost-turnover ratio and ROI, without looking at the bigger picture.
This blinkered approach is wholly inadequate when it comes to gaining an understanding of the increasingly complex consumer environment. What is needed is a holistic, integrated, profit driven strategy that accounts for the entire customer journey – both on and off the web. By assessing the lifetime value of your customers, you can find, attract and keep those who are loyal and valuable to your brand, without wasting time and money on those who are not.
Don’t expect this to be an easy ride. But the more you put into your profit driven search marketing strategy, the more you will get out of it. For example, Airbnb has adopted this approach, and connected with 101% more customers from AdWords in the past six months as a result. If their story isn’t an incentive for businesses to update their marketing practices, then I don’t know what is.
How to Adopt a Profit Driven Search Marketing Strategy
In order to reach new levels of profit, you need to spend more money – strategically. Before you can do that, you need to define exactly where your profits are coming from, which means gaining a better understanding of your customers’ habits.
Defining your profits
As I mentioned earlier, profit driven search marketing is concerned with finding, attracting and keeping valuable (i.e. loyal) customers. In order to achieve this, you need to understand your customers’ behaviour not only in the short term, but in the long term too. You will need to consider:
- The lifetime value of a new customer, i.e. on average, how long they stay loyal to your brand, how many purchases they make during that time, and the collective value of those purchases. Divide the average purchase value by the average length of time the customer remains loyal, and you have the customer lifetime value. Take this one step further by segmenting customers into groups based on meaningful differences (e.g. demographics, buying habits).
- The customer journey, both on- and offline, from first impression to final sale. Think about the conversion types that you are not currently reporting, such as visits to your store, phone calls, app downloads, and cross-device conversions. Figure out ways to track these and factor them into your profit definition.
- Customer acquisition and brand value. If possible, ask your sales team to record the ways in which customers are acquired and factor this in. For example, if one in every 10 customers comes to you through word of mouth referral, include a 10 percent multiplier in your profit definition. Think about brand awareness, too – for example, how many people are finding you online through branded keyword terms, or engaging with your brand via social media?
Work with your finance, analytics and customer services teams until you have a comprehensive understanding of customer lifetime value, conversion habits and acquisition. You should work towards a formula (or a series of formulae) that looks something like this:
Customer lifetime value x lift from additional conversion type x word of mouth value = revenue per customer [type A]
Next, subtract the cost of acquiring said customer. Your cost figure should account for all the assumptions that you factored into revenue, as well as the cost to create the product or service, and the total number of lifetime orders. You will then arrive at your total profit figure:
Revenue – advertising & conversion cost = profit per customer [type A]
Once you have collected this valuable information, you can use it to optimise your advertising spend by ‘customer type’, time of day, season etc. Your three main goals here are to:
- see what impact these different variables have on your net profit from search
- align your KPIs to achieve the desired business outcomes
- in Google’s terms, “connect real people with what they need at the moment they need it”
An increase in profits should follow naturally.
Using your total profit figures to optimise advertising spend
Now see what happens to your profit calculations when you change some of the inputs in AdWords. Pick an ad, ad group or campaign – one that is easy to monitor, has plenty of traffic and is capped at your target CPA (cost per acquisition), and which isn’t showing ads at the top of the page. Increase the bids until you see a significant difference in the volume of conversions.
Next, calculate the total profit of each bid level. It may well be that while your ROI efficiency has decreased, the total profit has actually increased. Keep bidding up until growth in sales volume no longer outweighs ROI efficiency loss, and you should have found your optimum advertising spend for that particular ad, ad group or campaign. (If you don’t have the budget to perform this kind of testing, AdWords bid simulators can give you a good idea of the possible outcomes.)
Gradually, you can start to implement a profit driven search marketing strategy across all your ads and campaigns. This may not be a quick fix solution by any means, but it can bring you big returns that you didn’t even know you were missing, as well as new customers.
As a forward-thinking agency providing a holistic, profit-driven approach to online marketing, Zelst will take as many relevant factors into account as possible when assessing the outcomes of your campaigns. We will work closely with you to define the best metrics by which to measure the success of your online marketing activities, enabling you to find, target and keep the customers who are most likely to remain loyal to your brand.
- Google’s guide to profit driven search marketing
- Google’s collection on profit driven marketing
- Some additional metrics that you might wish to consider, provided by the Young Entrepreneur Council (YEC) for Huffington Post
Image courtesy of www.bigdatacompanies.com