Why SEM is Not a Commodity
Soren | 13 July, 2011
Search Marketing firms all do essentially the same thing, right?
Nothing could be further from the truth.
Search Engine Marketing firms are created differently, and perform different tasks in the execution of their services. Here are some of the different approaches that agencies take, and how they can affect the your online marketing results.
1. Traffic vs. ROI?
This basic question regarding core service separates firms that are focused on your business goals from strict media buying companies that take no responsibility for the quality of the traffic they purchase. If a firm is focused only on traffic generation or holding specific positions in the ad networks, expect to pay very little for this service, as there is no optimization happening and you are on the hook for making the traffic that they supply profitable for you. Everything else that follows focuses only on firms that are addressing ROI at some level.
2. How is ROI being assessed?
The goal of any company is to make a profit, so ROI from marketing should be tied as closely to profitability as possible. Often, agencies will restrict themselves to measuring an online action that is not revenue producing (such as a lead form) and say that they are focused on ROI by controlling Cost-Per-Action. In this example, Cost-Per-Lead is only loosely tied to profitability, since lead quality, close rate, and variability in deal value may all be additional contributing factors. If the true profitability is not known, agencies run the risk of making tactical decisions that seem pro-ROI, but in fact are not. For example, an agency looking to optimize on a strict Cost-Per-Lead target, without looking at lead value, is likely undervaluing the most important part of the market and leaving business on the table.
3. Percentage Gains vs. Dollars
Search Marketing, both organic and paid, touts percentage gains (e.g.,”We saw 201% gain over the prior month.”). Sometimes percentages help dramatize the scale of a change in a way that the actual figures do not (for example, a change from .76 to .96 is a 26% gain). The danger arises in that percentages, when applied to ROI and profit, can be very misleading. This is why we always try to report performance as a profit number expressed in dollars. In fact, it is dangerous to try to optimize for a higher percentage ROI, as your actual total profit can drop. (Example: would you rather have a 200% ROI on $50 or a 100% ROI on $500?)
4. Data Integration
Many agencies limit the data they analyze for a number of reasons. Often this is because they are looking for efficiency, or they simply don’t have the tools or expertise to integrate data outside the norm. Most ROI-focused agencies will combine the ad spend and performance data from the ad networks with some site performance and conversion data, often from tools such as Google Analytics. These data form an incomplete picture as the true profitability of the user fails to be incorporated into the analysis and optimization. True profit-driven optimization should fold in profitability, margin, fixed cost, and lifetime value information in the optimization strategy routines.
5. Automation and Data Integrity
Automation is critical to Online Marketing as it allows for the efficient use of time in managing accounts. However, automation does not equal sophistication, and can severely restrict what an agency can do for you when bound by the limitations of its reach. For example, many bid management tools (including those used by the biggest agencies) limit the ad networks with which they can communicate (typically, Google and MSN for PPC, and limited ad exchanges for display). They may also be limited in whether or not external data (such as customer or sales information) can be integrated into their optimization practices. Many commercial tools do not allow visibility into non-Pay-Per-Click data, so it is impossible for certain very important types of analyses or strategies to be executed (cross-channel attribution, for one). Most importantly, many fully automated systems do not allow access to the raw data, and this makes data integrity difficult or impossible to be addressed. Data Integrity, whether it is a simple de-duping, or more advanced rules-based data processing, is vital for any performance-based campaign. Yet many agencies simply ignore it, or place it on the client’s shoulders to “clean” data from their site. If an agency relies on automation to run on auto-pilot, very little if any actual data analysis, strategic direction, creative testing, or high-level optimization is getting done.
6. Data Analysis
As an agency, we spend more time doing data analysis than any other single task. This often comes as a surprise to clients who think that the bulk of management time should be spent on keyword identification, ad writing, or tweaking bids. But it is by digging deeply into the data that we discover the rich information that allows us to develop the client-specific strategies that net us big gains. The sophistication of data analysis is probably the hardest thing to determine when evaluating an agency. Sometimes you can get a sense of this by asking about how the agency is structured. Who touches the account? How many accounts are they involved in? Is it an individual or a team? If you find that the people (or worse, person) involved in the campaign are also involved in twenty, thirty, or fifty other accounts, it is impossible that you are getting the hours spent on your account that should be devoted to data analysis.
7. Attribution
As Online Marketing matures as an industry and becomes even more performance-focused, the simple truth that user behavior is messy becomes more of an issue. Good Online Marketing firms are recognizing that they have to look beyond narrow marketing channel buckets in order to do the best possible job in creating profit for their clients. One of the main focuses in the industry right now is cross-channel attribution, which is the act of 1) identifying, and 2) attributing value to the multiple touch points customers might have across marketing channels prior to a sale. While this is most critical for businesses using multiple marketing channels (SEO, SEM, display ads, content ads, email, etc.), even companies with only paid and organic search need to be aware of the cross-over effects and what that means in terms of strategy. Good agencies look beyond their narrow management role to understand the big picture and to utilize attribution information to craft optimization strategies. This is a major issue for many agencies on two fronts. First, their tools (automation again) may have locked them into a last-click attribution model (which is to say, no attribution data), or they can only look at attribution in a single channel (for example, brand vs. non-brand terms in PPC). The second challenge for these agencies is that they may have no visibility into the attribution data because the data sources (ad networks and analytics tools) don’t provide the data in the first place.
Online Marketing firms are strategic partners that help to drive profitability. When evaluating an agency, remember that your profitability comes first. If an agency isn’t transparent, won’t let you own your accounts, or isn’t talking about how you make money, you should think twice. And conversely, if your first question is “How much do you charge?” you are probably asking the question at the wrong time, as you haven’t learned anything about what they can do for you and how they do it.
We love it when prospective clients do their homework and ask questions about any of the above topics. It doesn’t take much digging for the truth in those seemingly “apples-to-apples” SEM proposals to come to light.
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