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Why it’s not always smart to be No.1 in Paid Search Management

In today’s world, it is becoming increasingly important to ensure that your business has a web presence and, just as importantly, that your website be found by potential customers. Gone are the days when customers would just flip through the yellow pages, see your ad, and call or drop by for a visit. The world of advertising and paid marketing has evolved with the times and has grown into a multi-billion dollar per year business.

With so much money at stake, it’s important to be well-educated in regards to how you spend your marketing dollars. One of the best ways for a website to attract visitors is to initiate a paid search campaign. Such an advertising campaign has a simple premise: webmasters bid on key search phrases, and when a user searches for those key phrases they see your website’s link at the top of the search results page. Because your website is displayed above the other links on the page, users are more likely to click on it before they click on links to other competing websites.

In theory, it seems like it would always be in your best interest to bid for the top advertising spot. However, there are some key issues with this practice that, without proper paid marketing management, could cost your business a pretty penny.

Bidding for the top position isn’t just as simple as outbidding the competition once and cementing your search placement for a contracted duration. Instead, most advertising companies require you to bid for an amount that you are willing to pay “per click,” meaning you pay a certain amount of money for each visitor that clicks on your link, regardless of whether that customer ultimately earns you a profit or not. It is this cost-per-click model that can cost advertisers a bundle if they’re not careful.

To illustrate why it’s important to have good paid search management, and not to just constantly try to outbid your competitors, we’ll use a simple example. Let’s presume that you sell basketball jerseys on your website. You decide to start an ad campaign and are willing to pay as much as $3 per click – that means every time someone searches for “basketball jerseys” and clicks on your Number 1 link, you pay the search engine $3. This may secure you about 200 visitors per day, so you would pay $600 per day (unless you told your advertiser you wanted to stick to a budget of, say, $400 per day) to bring 200 visitors to your website.

On a good day, 3% of those customers – or about 6 in total — are likely to actually purchase something from your website, meaning you would need to make a net profit of $100 per customer on each of those orders to make up for the cost of your advertising campaign. Hopefully most of those buyers are high school coaches needing an order for the entire team.

On the other hand, let’s assume you don’t target the top position, but strategically aim for position 3 instead. You can spend significantly less on jockeying for the third position, but your results are still favorable. If you pay $1 per click and bring in 140 customers for being in position 3, you may be ahead of the game. Instead of spending $600 per day you have only spent $140, and if you manage to convert 3% of those customers to sales, which translates to 4 orders, you only need to sell $35 per order to make up your advertising cost.

The top spot in paid search is, by nature, the most aggressively-sought spot, even though it doesn’t necessarily produce better results (as shown above). Competition is less fierce for the slightly lower-ranked positions but there is no discernable disadvantage to being ranked second or third; it may mean a difference of only one or two sales once your site’s conversion rank is taken into consideration.

If this all seems like a lot to remember, don’t worry — we’re here to help you manage your paid search campaigns. By selecting smart key phrases, analyzing the demand for them, and comparing how much you need to pay per click to market to them, it’s possible to run an affordable ad campaign that doesn’t break the bank. The money you save by marketing smarter, not harder, will translate into better profits for your business. Even if you’re not in the business of selling goods or services, finding the best cost-per-click ratio is important to your website’s success. Why not let us lend you a hand and help you take some of the stress out of the process?