Right On Target photo by Colin Maykish, New York, NY, USA

A client asked us about paying to appear on Google’s Sponsored Links section. This program is called Google Adwords. While we always prefer natural search results (i.e. the site naturally shows up at the top of a search for relevant keywords) there are times when it makes sense to buy an advertising link in the results page.

When? It depends on your marketing metric. How do you track cost?

Rule #1 Know Your Costs

# Contacts > # enquiries > # sales > # repeat customers

therefore

Cost per contact < cost per enquiry < cost per sale < cost per repeat customer

Each step to the right costs more as the certainty increases. At the same time test and measure your results for each step in the process.

In addition to profit margin on an individual sale, you need to know what value a repeat customer is to you. Mercedes-Benz and Lexus have great customer loyalty. Repeat buyers mean they can afford to spend more on acquiring each customer. Of course if customers don’t repeat in a reasonable time-frame then skip that part.

Rule #2 Know Your Conversion Rate

How many contacts do you need for an enquiry? How many enquiries to get a sale? What percentage of buyers make a repeat or additional purchase?

If you convert 50% of contacts into enquiries, and 50% of inquiries into sales and 50% of sales into repeat customers you can work out what you’re willing to pay to get a customer. So providing your cost of acquisition at each step is less than the value that customer brings you it becomes self financing.

Rule #3 Your ad copy must pull.

Test and measure the results of every ad you run. Check in two directions. By that I mean not only should the ad attract enquiries, those enquiries should be interested in your offering and convert to the next step at some measurable average rate for the campaign. I could pull Mercedes-Benz car buyers with an ad but if I’m selling Mercedes-Benz trucks, I’m fishing in the wrong pond. Similarly if I’m selling exercise equipment I don’t want to attract magic pill buyers.

Rule #4 Focus your keywords

The keywords you target must be relevant. A search on Google Australia for the keyword recovery shows HP Australia advertising storage solutions. This is despite the ambiguous nature of the keyword. It also refers to sports, parties and rehab. Without access to HP’s results I can’t say whether that ad spend makes sense, but I wouldn’t recommend such poor positioning to my clients.

If you sell a premium priced product of service exclude searches that have the keywords affordable, cheap or inexpensive.

Now it could be that your product is so profitable and the demand so broad that it is better to attract everyone rather than spend the time and effort on such precision tactics. In that case you should be using one of the big advertising agencies because you’re in the FMCG space now.