Combating the Rising Cost of Keywords...Bottom-Up ROI Calculation
Combating the Rising Cost of Keywords: "Before you bid, or even choose advertising vehicles, you need to know how much you can spend on a lead. This is a bottom-up approach, because you must start with the cost of the product you're marketing; figure the amount of overhead that exists in producing, packaging; and delivering that product; add in the profit margin that makes it all worthwhile; then identify what you can comfortably spend on marketing.Let's say you're selling a clock for $10. You want a 20 percent margin, so you're immediately down to $8. You're buying the clock wholesale from the Black Forest for $7. That leaves you with $1 to comfortably spend getting leads. You may now go out and search for any opportunity that will deliver leads for $1, including search.
Unfortunately, too many marketers haven't taken these steps. They determine bid prices top down, which usually means going to the engines, inputting a keyword, and seeing how much it costs. Most supply chains are quite a bit more complex than the clock example, so you can see why the task hasn't been undertaken. Not only is it way too difficult, it's also outside the responsibility (and skill set) of the marketing department. Generally, they're in charge of advertising. So we get rough guesses instead of bids.
The clock seller, though, is well prepared to develop a bidding strategy. If he learns bids for 'clock' run $1.25, he knows that's not worth it for him. Maybe he'll bid instead on 'black forest clock.' If that phrase is only $0.50, he's in great shape. He makes his margin, but also gets a half-buck bonus on each sale. If 'black forest clock' doubles to $1, too bad. But he's still totally comfortable, as his ROI is built bottom up and untouchable.
Tools Are Necessary!
As keyword costs increase, inefficiencies will be laid bare. They'll be presented to your competitors as weaknesses. Get a handle on them before you begin to see keyword costs rise. As you identify them, you can put together the cost-per-lead you can comfortably pay and optimize your entire campaign around that.
When you're ready for that, you'll realize a select few organizations offer tools you can use to actually put this strategy into place and make it work. Most recently, iProspect released iProspect Search Engine Bidding Agent (iSEBA), an agent-based tool that takes the work you've done to identify your target cost per lead and organizes and optimizes your entire campaign around it.
The next phase of SEM will be about efficiency in your business. It will be galvanized by marketers who experience an increase in per-keyword costs. Now's the time to get ahead of that wave."
posted by Jen @ 9:34 AM
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