Today’s article is a bit different from my usual in-depth educational articles on how to improve your PPC performance.
That being said, I think the point I’m going to make is an important one for both agencies and business management.
I was reading an article the other day that said:
73% of CEOs think that marketers (agencies included) don’t focus on return on investment.
Personally, as a marketer, I wondered how this could possibly be the case.
Virtually all of the work that I do – as do the marketers reading this post – is towards improving the ROI of marketing efforts.
In fact, I may go as far as saying that 100% of marketers think that their focus is on ROI.
So why is it that marketers feel that they’re focusing on ROI, whilst CEOs think they’re not?
Why this huge gap in thinking?
The reason, in my opinion, is that in-house marketers and PPC agencies fail to see the bigger picture.
A lot of advertising metrics don’t necessarily mirror business metrics.
I’m not talking about vanity metrics like impressions, CTR, video views, etc.
I’m actually talking about metrics like conversions and cost-per-conversion that marketers consider to be strong indicators of business success.
Now, as a marketer, you might be thinking that by generating more conversions and cutting the cost-per=lead, you’re generating the business more profit, right?
Or at least, I would assume this was the case with the thousands of agencies that write case studies showing how they’ve cut cost-per-lead and increased the number of conversions.
But you never really see agencies that publish case studies showing how much more profit they have generated.
Generating more profit for a business is a much more complex process than simply generating more conversions, or cutting the cost-per-conversion.
You must take into consideration many more factors such as the business model, employee utilisation, and so on.
Let me explain how this might work for a call centre that is using Adwords to generate leads.
Say you have a 10-person call centre for which you are driving leads using Adwords.
Most marketers and agencies would focus on generating the maximum number of leads at the smallest possible cost.
Furthermore, most marketers and agencies think that generating the maximum number of leads at the smallest possible cost will generate the business more profit – but it will not.
If the call centre has capacity to take, say, 120 calls per hour (i.e. 12 calls per operative), but you’re only generating 48 calls (i.e. only 4 operatives busy) from your campaign, by trying to generate the maximum possible leads at the smallest possible cost, you’re missing the bigger picture.
Do you think the business owner would rather spend, say, another £80 per hour buying more expensive leads to keep all of their staff busy?
Or waste £120 worth of wages an hour on staff that have no calls to answer?
Here in Adwords, it looks like you’re doing a great job as an in-house marketer or an agency generating more cheap leads, but from the business owner’s perspective, you’re not focusing on generating him or her more profit.
100% of the time he’s going to choose to spend more money per lead, because he’s keeping his staff busier whilst making £40 more profit overall.
Likewise, if you’re generating enough calls for 4 operatives and they’re all at lunch, you’re going to be overbuying a lot of leads, wasting the business owner’s money.
What you need to be doing instead is building your own algorithmic models that change bids in Adwords using your own business data.
So, you can increase your bids and buy more leads when employee utilisation is low, and decrease bids when there are fewer call centre operatives available to answer calls.
This can be achieve using the Google Sheets API and the Adwords API, so you can bid in Adwords based on business data.
Another good example comes from businesses who sell training courses, or who have a fixed number of seats/rooms already paid for, like hotels and airlines.
Here’s what gave me the inspiration to write this post.
I was recently speaking with a business owner who provided training courses and generated leads using Adwords.
By looking at their business model, the cost to hold a class was fixed, and there was also a fixed number of seats.
For example, let’s say (not the real figures):
- Each class has 10 seats.
- The cost to hire the venue trainer is £1200.
- The cost per ticket is £600.
- Each customer costs roughly £200 in ad spend and salesperson’s time to generate.
This puts the break-even number of class members at 3 (£1200 for the venues + 3 x £200 for the attends). In other words, any class held with 3 attendees, who together cost no more than £600 in ad spend and salespersons’ time to generate, is profitable.
However, if the company had instead focused on generating the maximum number of leads at the smallest possible cost, they would have generated about 5 class attendees at a profit of £800 per class: (5 tickets at £600) – (5 x £200 for ad spend) – (£1200 for venue and trainer) = £800.
How can you make this happen? By determining the demand (number of leads required) and lead-time required to generate the interest to sell a place on a course, it would be possible to increase the bids using a script based on the number of empty seats on the course, so that it gets filled up.
So instead they would end up with something that looks like this:
(10 tickets at £600) – (10 x £350) – (£1200) = £1300
This would increase their cost-per-lead significantly in Adwords compared to the number of leads generated, but the business owner would love the results because he’d be generating much more profit.
Even better, by filling the classes, they would generate more referrals and reviews because more people are attending the course, which would generate even more profit by positive feedback.
It’s also possible for them to increase the bids to buy more expensive leads to help ensure that classes break even and don’t have to cancelled when there are fewer than 3 customers currently signed up to attend.
Once again, this can be done using the Adwords API and the Google Scripts API to bid in Adwords based on business data in Google Sheets.
The key to marketing success is to focus on business success.
If you want to be a great marketer, you need to fully understand the business model and how it generates profit.
You then need to deliver a solution that focuses on business success metrics, like bottom-line profits, as opposed to vanity indicators of success, such as the number of conversions and cost-per-conversion.
I appreciate there are some good marketers out there that do focus on business success. and this article is not aimed at you; instead it is aimed at the scores of marketers that fail to see the bigger picture.
I’m looking forward to hearing people’s thoughts on this in the comments section below!