Setting a Search Engine Marketing Budget

By Kevin Lee | Posted May 14, 2003
Whether you're marketing a brand, business-to-business products and services, or even preparing a direct market campaign, chances are search marketing budgets are a fact of life. Conforming search engine campaigns to fit a budget can be quite a challenge. Some direct marketers have the freedom to operate without budgets — as long as each marketing dollar returns the desired cost per action/order (CPA/CPO), the dollar is considered well invested. That translates to an unlimited budget, as long as the allowable cost is not exceeded.

Most small businesses don't have that flexibility. It does make sense for small business marketers to have the flexibility to reallocate budgets across media measured. After all, if you find search does better than direct mail, banner, or telemarketing campaigns, you'd want to shift money between channels. If a group of listings within search works better (higher return on investment, profit, or sales), a budget shift may be in order.

The larger your organization, the more likely you are to have a strict budget process for all media, including paid search. Agencies planning and buying media for clients are likely to work within budgets. That's the way media buying evolved. Once, media couldn't be measured against objectives daily. Budgeting brought order to chaos.

Search marketing is different. It's hard to budget for most search listings. Budgeting will be harder with Google's phase-out of "premium listings," where spending levels and position were under your control. Luckily, there are strategies for budgeting search campaigns across vendors. I'll cover these as well as some top mistakes, for those working with a fixed search budget.

Portal Deals
For larger marketers and agencies with large, fixed budgets, the temptation is to jump into a search listings portal deal to make the budget easy to determine. Portal deals can be a powerful campaign addition. Budget, traffic, and conversion are more predictable with portal deals than with most other search traffic sources. Before diving in, it's better to collect and analyze data regarding what kind of search listings, creative, and keywords work for you. This can be done while running more flexible deals on a variety of nonportal venues before committing to a portal deal. Both Google and Overture provide great levels of control with listings that are displayed on major portals.

Budgets for brand-new search campaigns in the auction-style markets are notoriously difficult to predict accurately. Campaign budgets can be set using estimates of conversion rates and click prices at which your campaigns meet objectives. Inventory counts are available in most venues, which allows you to create a rough estimate of spending within specific venues.

For example, if you expect average conversion to sale/registration of 3.5 percent on traffic and your allowable CPA/CPO is $40, you might anticipate a working cost per clickthrouh (CPC) budget CPC in the range of $1.40. (Once your campaign is live, results will vary broadly, but we're estimating for budget purposes.) At that maximum CPC, you'll get a general estimate of position and spending. Spending estimates are ballpark. They make assumptions as to the competitive marketplace, sustained inventory levels, click-through rate (CTR), even conversion/quality. Any of the variables can and will change, invalidating your estimate. But if you work within a budget, better a baseline than no idea at all.

If you have a position-based strategy, be prepared to spend significantly fighting competitors for position. Strategies based on return on investment (ROI) allow more flexibility.

Auction Marketplaces
With auction marketplaces such as Google and Overture, it's usually not a good idea to set a daily or monthly budget. Far better is to determine as quickly as possible the listings that generate the best ROI, revenue, or profit (depending on your goal). If you need to cut spending, cut the least efficient portions of the campaign. It won't take long to get enough data to make rough changes to the campaign makeup. Later, you can determine if your budget allocation would be best served using dayparts or other more sophisticated strategies.

Up-and-Running Campaigns
Already have a search marketing campaign running? You may have evolved your current budget. As search proved itself, perhaps you upped the budget, or listings in auction engines rose in price as more competitors entered the market. In any case, if your budget runs out before the end of the month, you're wasting money. Select the best listings and eliminate the less-effective ones to make better use of your budget. This is done through a feedback loop that uses analysis and data to fine-tune listings. Lonny R. Paul, TigerDirect.com's director of e-commerce, indicated to me that "partnering with all major CPC players is a monumental challenge to anyone listing several thousand products or terms. By utilizing careful controls and real-time analysis, the power of search media can be realized painlessly." Exactly how painless will likely depend on your budget flexibility and ROI goals.

With a new or existing campaign, go broad with keywords, search media types, and engines. You won't know what keywords and key phrases work with specific vendors if you don't test them. Some keywords are much more efficient than others. Listings don't have to be tested at premium positions and high CPCs. If you're close to your maximum spend, look at your least-efficient listings (with the highest CPA/CPO), turn some of these down (or shut them off), then spread the budget across new terms. When testing terms, it won't take long to determine if they work. High-popularity terms often prove themselves or fail quickly, particularly at high positions.

XML Paid Inclusion
For extensible markup language (XML) paid inclusion (large sites with great content are perfect candidates), a short test can be run at Inktomi and other engines. Your content (XML file/document) can be tested for click volume. This gives you a spending level. Implement the XML test with a technology and a team (internal or external) that can not only tell you which listings convert but also which drive click volume. If click volume is too high, XML conversion and volume data allows you to scale back the XML feed to a more acceptable level. Focus on top-performing listings (based on ROI, profit, or revenue) to ensure the budget is well spent.

Each marketplace has its own budgeting rules, best practices, and nuances. Be prepared to move money across engines based on success. To allocate effectively, know your success metrics and how each listing fares against them. Metrics might include CPA/CPO, return on advertising spending (ROAS), and profit (immediate or lifetime).

If you're under budget, boost position/price to generate more traffic, particularly with listings that work (efficiently meeting objectives). If over budget based on current spend, lower prices or positions on the least efficient listings. In the case of fixed CPC vendors, such as LookSmart, or XML paid inclusion, turn off marginal listings where CPO, CPA, or profit levels are poor. Or implement dayparting in some venues to bring budget in line with requirements while preserving the most critical traffic at the most valuable times of day, or days of week.

Search engine marketing offers tremendous flexibility. Take advantage of it to ensure money is spent responsibly. Search engine representatives are happy to help with estimates when given a list of keywords and a maximum CPC (for estimating). Use the analysis tools at your disposal to make sure you meet objectives, and don't just spend that budget.

Adapted from ClickZ.com.

Kevin Lee is chief executive officer of Did-it.com. Did-it.com clients rely on Did-it's automated systems to manage paid search results campaigns in auction and XML paid inclusion vendors based on their CPO/CPA data. Kevin and the Did-it team have been helping marketers since 1996. Kevin also co-founded INTERACT Multimedia, a top interactive agency, and publishes a marketing newsletter. Kevin earned an MBA from Yale School of Management in 1992.

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