Imagine your name is Jacques and you work as the Director of Marketing at Le Hamburger Institute. Le Hamburger sells French language courses online and competes against other online education companies such as Rosetta Stone, Babbel, Pimsleur, and Fluenz.
Your objective is revenue growth, but only 75% of your proposed digital marketing budget has been approved.
So you can achieve that objective, you have to convince senior leadership that they should approve the remainder of your budget, which allocates resources to a new marketing strategy for your company–using paid search channels (aka SEM or PPC).
You are certain that SEM will be the next big marketing channel for your E-Commerce business, but you need to get senior leadership on the same page to get a final approval for the budget.
What do you do?
Option #1. Take The Freddy Rumsen Approach
Remember Freddy Rumsen from Mad Men? He was an old-fashioned senior copywriter who got drunk and pissed his pants before his big pitch.
If you take Freddy’s approach, you might read a few blogs, gather some anecdotal evidence and think you’re prepared to make a strong pitch.
But, like Freddy, you don’t have concrete data and a clear plan to present to senior leadership. Someone starts asking questions about the numbers supporting your plan, you don’t have good answers.
Shit hits the fan and your idea will get shot down on the spot.
At SCUBE, we see it happen again and again. Businesses invest in the new digital advertising channels without the due diligence for the viability of the marketing channel.
Their company ends up doing a lot of work, spending a lot of money, getting into long-term agency relationships and realizing that there was never an opportunity for their product.
I know you are smarter than this. In fact, I think you’re probably more like Peggy Olson than Freddy.
Option #2. Take The Peggy Olson Approach
You probably remember Peggy Olson from Mad Men, who went from a secretary to the copy chief because of her work ethic. If you’re like Peggy, you will do your homework and develop a good plan–one based on data.
Today there are more marketers like Peggy Olson. Robert Allen, one of the digital marketing gurus at Smart Insights emphasizes that 77% of marketing professionals think a planned approach focusing on analytics and continued optimization is the most effective way of managing digital marketing. Only 14% think a relatively unplanned, reactive approach is best.
@@A plan based on data analysis gives you facts.@@
Whether good or bad, facts are facts. If the facts support your objectives, your senior leadership team will have no choice but to sign off on your budget, and you will be off to the races to implement the paid search program and start a “baller walk” around the office like Peggy Olson.
Ready to roll up your sleeves and develop a monumental E-Commerce PPC marketing strategy for your company? There are 5 steps you can’t miss.
#1. Clarify Your Paid Search Strategy Objectives
First, think about the objective. No PPC strategy should start without a clear objective.
Most E-Commerce marketing leaders are interested in sales growth and high ROI.
Obviously, this is the end goal. Easier said than done.
HubSpot’s State of Inbound annual report reveals that traffic generation, lead generation and proving ROI are the biggest concerns in today's marketing.
That’s why you need to be more strategic in your approach by clarifying your SEM objectives and breaking them down:
Lead Generation - acquire email subscribers that will eventually become customers in the future.
Customer Acquisition - acquire customers and build a relationship with them.
Customer Retention - retain customers and increase the customer lifetime value (CLV).
Remember, your objectives determine the metrics you measure. Here is the list of metrics associated with the goals:
Customer Lifetime Value (CLV)
CLV is one of the most important metrics to use, so I will put it in a separate category. Many E-Commerce businesses are calculating ROI on one purchase and it is one of the common mistakes that E-Commerce companies are making, according to Jaime Brugueras, VP of Customer Success at Networked Insights where he leads the analytics team. CLV, on the other hand, helps predict profit for an entire future relationship with a customer.
Since the metrics are misaligned, these companies rarely focus on maximizing the customer lifetime value. Here is the formula developed by Edward Gotham:
CLV = T x AOV x AGM x ALT
T = Average monthly transactions
AOV = Average order value
ALT = Average Customer Lifespan (in months)
AGM = Average gross margin
CLV applies to all objectives, because the higher the number, the more room you have to play to acquire new customers.
Lead Generation Metrics
Leads - email subscribers you engage with the hope of turning them into customers.
Cost Per Lead (CPL) - cost to acquire a lead.
Lead Conversion Rate - rate at which traffic turns into leads.
Lead to Customer Conversion Rate - rate at which leads turn into customers.
Customer Acquisition Metrics
New Customers - acquire customers and build a relationship with them.
Customer Acquisition Cost (CAC) - cost to acquire a customer.
Customer Conversion Rate - rate at which traffic turns into customers.
Customer Retention Metrics
Retained Customers - engage existing customers to purchase more often.
Customer Retention Cost - cost to retain the customers and maximize CLV.
Repeat Conversion Rate - rate at which existing customers purchase more products.
Example: Clarify Le Hamburger’s Paid Search Strategy Objectives
Le Hamburger sells online courses at $200 each. On average their customers buy a new level course every 6 months and buy 5 courses throughout their lifetime. Le Hamburger’s gross profit margin is 60%. Here is the breakdown for our CLV formula:
T = 2/12 = 0.1667 transactions/month
AOV = $200
ALT = 30 months
AGM = 60%
CLV = 0.1667 x $200 x 30 x 60% = $600
Now that you know you can spend up to $600 to acquire one customer and still break even, you can set some boundaries for each objective:
Lead Generation Metrics
Cost Per Lead (CPL) - $120
Lead Conversion Rate - 10%
Lead to Customer Conversion Rate - 20%
Customer Acquisition Metrics
Customer Acquisition Cost (CAC) - $600
Customer Conversion Rate - 2%
#2. Gather Keyword Ideas for All Buyer’s Journey Segments
Paid search is driven by people searching for things. Therefore, it has its limitations. It fulfills demand. If no one is searching for what you have to sell, there is no demand.
However, don’t make the mistake of limiting your opportunity to one stage of the buyer’s journey. There are generally three stages and here is how they differ:
Awareness stage - early in the buying process. Looking for ideas or trying to identify the problem. Far from making a decision.
Consideration stage - considering potential options. Planning stage. Not ready to make a decision.
Decision stage - ready to make a decision. Looking for a solution.
Start your keyword research using one of the following three ways:
Google AdWords Keyword Planner. Type in a few obvious phrases related to your product for example “learn french” and Keyword Planner will present a lot of ideas to choose from.
SpyFu Keyword Research tool. This is very similar to the Keyword Planner method; however, SpyFu will suggest Profitable Related Keywords using your competitor data. You can start with “learn french” and you will end up at “french study course online”.
SpyFu PPC Research tool. Another great method to start your keyword research is to spy on your competitors. Take a competitor that is very active in your space and run their domain through the PPC Keywords tab of SpyFu’s PPC Research tool. For example, run rosettastone.com. You will see the keyword list they bid on. Then use a filter to narrow down to “french” keywords.
Once you have a decent list, don’t keep the pile of search terms lumped together. Break everything into products / product categories, so you can make more granular decisions. Then start mapping common keyword themes to the stages of the buyer’s journey. This will allow you to quickly understand your keyword coverage by each stage.
Watch out for intent bombs during your keyword research. What are intent bombs? They are high-volume search terms that aren’t intended for your business but could be triggered by relevant keywords.
For example, the main keyword for Le Hamburger is “Learn French”. However, it will also trigger “Learn French Kiss” search term. You don’t want your paid search ads to show up under “Learn French Kiss” search terms when you are selling French language courses.
What can you do about it? Add negative keywords during the research process to exclude words or phrases that change the intent of your search terms.
Example: Le Hamburger’s Keyword Ideas For All Buyer’s Journey Segments
Le Hamburger has only one product type - online course for learning french language. So you have to brainstorm different ways potential students are searching for a french language course.
You identified three steps for the prospective Le Hamburger buyer:
Awareness stage - people looking for ideas on how to learn and speak french.
Consideration stage - people looking for french language course types and pricing.
Decision stage - people looking for a french course or class online.
Then based on three stages, you organized your keywords into campaigns and ad groups. This helps you have a more granular view of your keyword opportunity list and structure ideas more strategically.
When looking into the search volume, don’t have a pile of search terms lumped together. Break everything into products / product categories and buyer’s journey segments, so you can make more granular decisions.
Bonus Tip: Align Your Offer and Expectations for Each Stage
When considering a PPC channel, you have to evaluate the opportunity at each stage and set the right expectations at each stage.
If your objective is an immediate sale, you can only focus your efforts on the Decision stage - people who are ready to buy. If you try to immediately sell your product to the buyers in the awareness and consideration stages, you will waste your advertising dollars and get poor results.
If your focus is lead generation, focus on Awareness and Consideration stages. Then develop a follow-up plan to proactively communicate with them, until they reach the Decision stage.
At each Buyer’s Journey stage, you have to help your buyers achieve their objective, so they can move to the next stage. For example,
Offer a free “French for Beginners” mini-lesson to the Awareness stage buyers.
Offer a free trial to the first module of the course to the Consideration stage buyers.
#3. Estimate Total Paid Search Advertising Opportunity
Your opportunity is limited to the search volume of the keywords you are targeting. Your search volume will come from targeting 5 factors:
Keywords for products and product categories you sell.
Keywords for the stages of your buyer’s journey.
Locations where the keyword searches are being triggered.
Devices on which the searches are being triggered.
Schedules for when the ads will be active.
All factors contribute directly to the total opportunity and are interrelated to each other. You can manipulate them, but you will be confined within their boundaries.
Start with the main metric on the search engine - Search Volume.
Once you have search terms and their search volume, you can estimate the other metrics for your search opportunity. Continue with the following metrics:
Clicks. Use Google Traffic Estimator to determine the optimal number of clicks based on the bids you are willing to place. Factor in the average ad position (Avg Pos) and click-through rate (CTR) to get to the number. Clicks = Search Volume x CTR (for your Ad Position)
Cost. Evaluate how much the traffic will cost using your clicks and cost per click. Cost = Clicks x CPC
Conversions. Depending on your objective (it could be Leads or Customers), plug in the historical conversion rate (if you have your website conversion rate great, otherwise look for an average for your industry) to determine how many conversions each product / product category can generate. If you use buyer’s journey segments, their conversion rates will vary as well.
Cost Per Conversion (Cost Per Lead or Customer Acquisition Cost). Calculate how much each lead or customer would cost for each product or category.
Add each segment and product categories to get to the total. Now you have an estimate of the total market opportunity for your target audience, traffic to your website, monthly budget, orders and cost per order.
This is your opportunity.
Example: Estimating Le Hamburger’s Paid Search Opportunity
Let’s break it down:
Keywords for products and product categories. Since Le Hamburger has one product type, the opportunity will be limited to one product.
Keywords for the stages of your buyer’s journey. You found keywords in Awareness, Consideration, and Decision stages. Use them all for now.
Locations where the searches are being triggered. You sell courses nationally in the United States. Focus on targeting U.S. traffic.
Devices on which the searches are being triggered. Your website uses responsive web design and your historical conversion rate for mobile devices is within the 20% range of desktop devices. Focus on all devices in the targeting.
Schedules for when the ads will be active. Focus on all days and hours of the day, except midnight to 4am.
Based on the factors above, you gather the search volume for the list of chosen keywords, summarize them at the Ad Group level, then Campaign, and Buyer’s Journey segment level.
Voila! You have a table with your total PPC channel opportunity.
#4. Evaluate the PPC Channel Economics
Knowing your paid search opportunity is great, but knowing how it aligns with your business objectives is even more important because the economics will dictate your decisions.
Time to go back to step #1 and evaluate how the numbers align with your company’s objectives.
Where do we start? You have three levels of analysis:
Total. Is this channel right for your company? If your objective was customer acquisition, does this channel promise a Customer Acquisition Cost in line with your objective?
Product. To which products / product categories can you afford to market? Usually, the answer is not all. Some products will have a greater opportunity for traffic and orders. Some products will have lower acquisition costs. Some products will be ridiculously expensive to advertise.
Buyer’s Journey Stage. Which stages give you more immediate economic impact? Which stages can you afford to advertise in? A lot of E-Commerce companies like to focus primarily on the decision stage; however, when it gets too crowded, it inflates the acquisition costs and affects the profitability of your campaigns. On the other hand, upper funnel campaigns (if handled properly) could present a better opportunity with less expensive traffic and usually more of it.
After your analysis is done, expect to eliminate some campaigns and ad groups from your initial opportunity list. The remainder will go to the next step - budget decisions.
Example: Evaluate Le Hamburger’s PPC Channel Economics
Total. Customer Acquisition Cost is $156 across all campaigns, so assuming that the cost per click and conversion rate remain consistent, paid search definitely aligns with the objectives.
Product. Since Le Hamburger has only one product, the decision is clear. However, you can evaluate the numbers at the ad group level. The Customer Acquisition Cost are in line. Next, let’s take a look at the traffic opportunity at the ad group level. Some ad groups that have an extremely low traffic opportunity, will take up resources to manage them. So you can deprioritize them until a later date.
Buyer’s Journey Stage. All stages represent healthy numbers: $164 for the Decision stage, $107 for the Consideration, and $187 for the Awareness stage. No need to eliminate anything due to economics.
#5. Set The Paid Search Marketing Budget
The final consideration is the budget. It is almost always limited and you have to fight for it.
I have a 90% guess, that your SEM opportunity is higher than your budget.
This is usually the case with most E-Commerce marketers. December 2016 E-Marketer study shows that the biggest objective for digital marketers is the increase in revenue and the biggest obstacle is obtaining the adequate budget to achieve the objective.
When the PPC budget is limited, you have to prioritize it. Here is how:
Economics for short-term objectives. Think no budget cap for this category. These campaigns have the highest likelihood of meeting your immediate revenue objectives. Decision stage campaigns with strong economic indicators is a great example.
Economics for long-term objectives. This category represents Consideration and Awareness stage campaigns that focus on lead generation vs. revenue. They have limits based on their estimated metrics and delayed value to the bottom line.
Cushion for the unexpected. Remember that budget and market opportunity estimates are still estimates. Anything can change. You cannot control the market or your competitors. Therefore, leave a portion of the budget as a cushion for the unexpected.
Example: Set Le Hamburger’s Paid Search Marketing Budget
Le Hamburger has $50,000/month to spend on a new channel. Here is how to allocate it based on the analysis above:
Economics for short-term objectives. The campaigns in the Decision stage look healthy, allocate $28,179 towards the budget.
Economics for long-term objectives. The consideration stage has 3 ad groups with appealing numbers: French Lessons, French Courses, and Learn French Online. Their search volume is high and cost per order remains healthy. Since French Classes ad group has healthy metrics but represents a high percentage of the total segment budget, test 50% and adjust the budget later. The total: $16,172. The Awareness stage has Study French and Speak French campaigns with a decent traffic volume and low cost per order. The total: $3,027.
Cushion for the unexpected. Cushion for the unexpected: $2,622, which is about 5%.
Time to step out of Jacques from Le Hamburger shoes and get back to your business. If you plan to launch a new E-Commerce paid search ads program or expand an existing one, use the concepts and examples above to develop a clear strategy.
You will gain clarity about your business and marketing objectives and the numbers will back up your ask for a bigger marketing budget.
I Want to Hear From You
If you have launched a paid search program before, what was the most important step in the process?
Let us know in the comments.