Is paying for AdWords worth it? Well, yes and no.
To someone unfamiliar with pay-per-click (PPC), opening the Google AdWords dashboard might look like a seven-headed monster that no entrepreneur can slay. I saw this time and time again during my time at Google. It’s a big reason why my co-founder and I decided to start AdHawk in the first place.
AdWords is complicated and can be overwhelming, which means there is a lot of misinformation floating out there and plenty of myths that call for some debunking.
We at Adhawk have had thousands of conversations with clients and potential clients about these myths, so I’m going to put the most common ones to rest today. Let’s get debunkin’.
Myth No. 1: The top ad position is always the best.
It’s automatically assumed that the first results are going to give you the most return for your money, but that’s not necessarily true.
A study by Hallam Digital found that while the top position drove the most clicks, the second and third positions drove three to four times more conversions, respectively. They conclude that providing useful information, optimizing your landing page, adding extensions, using relevant copy and improving your overall quality score should always be a higher priority than anything else.
They further suggest that the second and third results receive more high-quality clicks because the first position draws in a mass audience, many of whom are not qualified to drive that coveted conversion.
If your ad is not in the first position and you’re still driving conversions, budgeting correctly and turning a profit, then so be it. This brings me to the next myth.
Myth No. 2: Every business needs to double down on PPC advertising.
PPC is more effective for some businesses more than others, but what it really boils down to is budgeting. Brett Farmiloebreaks it down into these three easy formulas:
- (Revenue / Sales Period) / Average Sale = Number of Customers
- Number of Customers / Conversion Rate = Number of Leads
- Number of Leads / Conversion Rate on Traffic = Amount of Traffic
What this means is that if the price to acquire a customer is greater than the customer’s lifetime value, PPC is not worth it for you.
This might be the case for low-traffic and high-competition industries, where PPC advertising may cut margins and not scale.
Myth No. 3: You don’t need PPC if you have high-ranking organic content.
Organic strategies like SEO, social and email go hand in hand with PPC strategies. If you have the bandwidth and resources to execute, do all of them.
Building organic traffic is a great strategy that will pay off in the long run. That being said, managing and updating your SEO efforts after every Google algorithm update can start to feel like a never-ending game of whack-a-mole. The advantage of PPC advertising is how quickly it can be spun up to scale your business, and the relative stability it brings to the table.
The numbers speak for themselves. Paid search results drive 1.5 times more clicks than organic traffic, primarily because paid spots drive traffic to customized landing pages. Organic content is a great way to generate an audience, but if you want a predictable and direct method of acquiring customers or driving conversions, PPC is the way to go.
If you already have high-ranking content, you can double-rank on Google by creating paid ads for the same keywords your organic content ranks for. That’s double the real estate and double the chances for conversions.Forbes Agency Council is an invitation-only community for executives in successful public relations, media strategy, creative and advertising agencies. Do I qualify?
Myth No. 4: Google is far superior to Bing.
For the record, no search engine is going to beat out Google in the near future. But Bing is in second place in terms of market share and it’s starting to gain significant traction.
Bing has its shortcomings (like less-advanced ad options), but it provides options that Google doesn’t, like being able to share budgets among all your campaigns.
Bing’s future is entertained by the fact that more than 50% of all search queries are now done through mobile. With Bing powering AOL, Yahoo, Amazon and Siri, things are looking bright.
This means Bing has a different user base than Google, which can provide a profitable opportunity to reach a new audience. For Search Engine Watch, driving conversions on Bing proved to be 63.23% cheaper than on Google.
The next time you hear one of these myths, share your newfound myth-busting knowledge with a friend, or tweet at me @AdHawk.
The answer to identifying the appropriate PPC advertising budget depends on projections, assumptions and math. In this article, I’ll dive into a few of the formulas we use to help companies determine how much to spend on online advertising.
Lead Generation Formula
The core purpose of running paid ads is to achieve a business objective. We use a lead generation equation to help us reach that objective. The equations are simple:
(Revenue / Sales Period) / Average Sale = Number of Customers
Number of Customers / Conversion Rate = Number of Leads
Number of Leads / Conversion Rate on Traffic = Amount of Traffic
Let’s fill in these equations with some real numbers. Let’s say there is a revenue goal of $1 million. There are 12 sales periods per year (recurring monthly revenue) and the average sale per customer is $1,000.
($1 million / 12) / $1,000 = 83.33 customers
To get to $1 million in revenue, you’ll need about 84 customers. Now, let’s assume your sales team closes one out of every five leads, or 20%.
83.33 customers / 20% = 416.66 leads
Assuming a 20% close rate, you’ll need about 417 leads per year. Let’s assume 5% of your paid advertising traffic actually fills out a contact form to qualify as a lead.
416.66 leads / 5% conversion rate = 8,333.33 visits
With a 5% contact form conversion rate, you’ll need about 8,334 website visits to generate 417 leads, which will translate into 84 customers, which will equate to $1 million in revenue.
Of course, that’s if the numbers work out, which leads us to the next step in determining an advertising budget.
Existing Marketing Strategy
Paid advertising is only necessary if other marketing tactics fall short of achieving your revenue objective. Essentially, paid ads can help make up for the shortcomings of search engine optimization, email marketing, social media marketing and other forms of marketing meant to drive leads for your business.
Which marketing assets are currently driving results?
Taking into account how SEO, email, social and other marketing tactics are performing provides a more holistic marketing strategy. For example, if the strategies for SEO, email and social get you to 75% of your revenue objectives, then you’ll know paid advertising needs to account for the remaining 25%. Instead of driving $1 million in revenue, paid advertising can focus on driving $250,000 of revenue.
What are your competitors spending on paid ads? What are their targeted keywords?
You can spy on your competitor’s paid advertising activity by using a service like SpyFu or SEMRush. Simply plug in your competitor’s website URL and these services will estimate their Google AdWords activity – including their estimated monthly spend, targeted keywords and ads.
The key here is to analyze at least five competitors to get a good baseline for the average spend in your industry. Make a list of three known competitors. Then, include two competitors who are bidding on your target keyword.
Let’s say competitor one is spending $3,000 per month, competitor two is spending $4,500, competitor three spends $0, competitor four spends $10,000, and competitor five spends $2,000.
Typically we’ll throw out the high and low to average out the remaining three competitors and get a ballpark estimate of what a company should roughly spend on Google AdWords to be competitive in their respective industry. In the example above, averaging out competitor spend estimates a monthly budget of $3,166 would be enough to be competitive.
But would it really, given your business objectives of $1 million in revenue? Let’s do some keyword research to see if search volumes will achieve your revenue results.