Monday, July 27, 2009

Managing CPC Campaigns on a Cost per Lead Basis

As a PPC agency, we get to review a lot of PPC campaigns that are run either in-house or through another agency for the purpose of helping prospective clients determine if we can achieve better results.

Since we tend to do more business in the B2B space, it’s surprising to me that many of the campaigns we review seem to be focused on getting as many visitors as possible for the allotted PPC marketing budget. The bids are low and the keywords are loosely and broadly targeted, resulting in the showing of ads to a large number of untargeted visitors, and generating low cost and low value visitors.

Generally, we’re seeing a focus on more traditional web analytics metrics that can be good for measuring visitor engagement, but are not the most appropriate for a lead generation campaign. The focus on these metrics is causing a part of the problems we see:

Avoid Too Much Focus on ‘Soft’ Engagement Metrics
There are certain metrics we call ‘soft’ metrics because they don’t correlate directly or even indirectly to sales ready leads generated. These include:

• Total number of visits
• Cost per visit
• Bounce rate
• CTR (click through rate)
• Time on site
• Number of pages viewed
• Conversions

It’s not hard to understand why this is the case. First, these are the metrics that are immediately available within in Google AdWords and Google Analytics (or any other PPC or web analytics platform), with minimal configuration. Secondly, and more concerning, is that they can easily and ostensibly appear to show ‘value’; an increased number of visits, and apparent ‘prospect engagement’.

These metrics aren’t totally useless, but viewed in isolation they can be dangerous and can lead to erroneous assumptions regarding campaign success. Just because a campaign demonstrates increases in site traffic and page views, which will very likely happen as a function of the paid search program, does not mean that it’s been successful. Focusing on these soft metrics can lead clients into believing that a poorly run campaign is actually driving business results. Yet other measures, which may be being overlooked (e.g. conversions and leads) may not be increasing at the same rate, which would paint an entirely different picture of the campaign.

For most B2B companies, paid search campaigns are run with the intent to generate leads. As such this type of campaign needs to be approached and run quite differently from one that’s intended to generate more site visitors and more page views (e.g. for a B2C portal that’s business model is based on selling advertising).

Managing PPC Campaigns through Cost per Lead and Opportunity
We strongly believe that PPC marketing campaigns that are intended for lead generation should be laser focused on cost per prospect, lead, opportunity and sale over any other metric. These metrics are the only true measures of value for a campaign that is focused on lead generation. Implementing tracking systems for accurate measures of these metrics is not necessarily easy, but it’s well worth the effort.

Creating targets for the cost per opportunity and sale and focusing on developing a laser targeted campaign that attracts exactly the right visitors (who are most likely to convert to a lead or sale) is a much more effective strategy for a B2B campaign. A monthly budget limit can still be used, but the number of leads generated will be typically greatly increased compared to the previous campaign. And if the organization has no problems related to inventory or fulfillment of the business (a surprisingly common problem) – it may well be determined that the budget should be increased based on success to scale as far as the search volume allows to deliver even more leads to the sales force.

Use of Industry Averages and Benchmarks
Developing targets and comparing against industry benchmarks for ‘soft’ metrics can be useful, but should be considered no more than a secondary goal to achieve.

In general, it’s better to look at industry average conversion rates, cost per prospect, cost per lead, cost per opportunity and cost per sale. But even then, industry averages can lead you astray because cost per click varies widely per keyword, and other cost measurements are affected greatly by the persuasion and nurture components of the campaign. So while comparisons to industry averages can help to some extent with goal setting, this should not be the only measure used.

Doing Your Marketing Math
It can be quite difficult to set up accurate tracking mechanisms to measure the cost of sales down to the campaign and keyword level, particularly in B2B markets with high value sales. Some of the problems include sales being closed offline, leads being delivered to partners or through a channel, multiple people in the purchasing decision, or even internal resistance to measurement where it’s perceived as a threat.

It’s absolutely possible to implement better tracking, however, and it will probably have to be done eventually. It might take some significant changes to the way the business operates, but that’s to be expected and should actually be embraced given the changes that the Internet is bringing to businesses in all industries.

Conversion Rates
Our experience suggests that it should be the target of a lead generation campaign to achieve conversion rates in the double digits over time, with a short term target of at least 3-5%. Considering the amount spent on Media over time – its well worth it to measure, test, and attempt to improve your conversion rate by campaign and traffic source. This is typically accomplished through the development of a large set up landing pages designed to provide perfect context for every visitor to the site, optimized conversion paths, and triggered nurture campaigns.

Every extra little bit of improved performance you can squeeze out of a campaign results in a higher ROI, and will allow you to pay more than your competitor for the traffic while remaining profitable.

Cost per Prospect and Lead
Multiplying your conversion rate by your estimated avg. CPC (cost per click) will give you your cost per prospect. You should probably aim to convert 15 - 50% of those prospects to sales ready leads through the second step form(s) and triggered nurture campaigns.

Calculating this, first as an estimate, then tweaked as necessary to create goals, and then measured with actual results will give you your estimated, target, and actual cost per lead.

Don’t just rely on Google data
It’s important to note that a ‘conversion’ as reported by Google Adwords, or a ‘completed goal’ as reported by Google Analytics is NOT the same as a prospect or a lead from a sales and marketing perspective. It’s very easy for these numbers to be distorted through multiple form submissions by the same person, test submissions by employees and developers, ‘fake’ or ‘invalid’ submissions by prospects trying to ‘beat the system’, or non-sales related inquires. Only through analyzing, filtering and reporting on actual prospects in the database is it possible to determine the actual cost per prospect.

What’s required to do this is a combination of the appropriate technology and correct campaign tagging that will accurately capture all contact source information including the website, campaign, keyword, and medium (CPC, Organic, etc.) that brought the contacts.

SELF-PROMOTIONAL SIDENOTE: We’ve been developing and refining this technology in our online marketing platform for a number of years. It’s easy, and perhaps natural, for an ambitious IT department to want to develop the technology in house, or have concerns about using 3rd party systems to track their own data, but I think it’s rare for this to be a cost effective approach since the technology can be ‘rented’ for a fraction of the cost of developing even a basic system from scratch. Data concerns can easily be mitigated, and you get the even more value from a platform is under constant development

Cost per Opportunity and Sale
Qualified opportunities and sales should be tracked by the sales team and reported back to the agency or PPC marketer through a CRM system integration (or using simple Excel files) so they can close the loop and determine the real cost per opportunity and sale. This provides the ultimate ROI for the paid search campaign, allowing clients to make informed decisions on which parts of the program should be expanded, and which parts should be discontinued.

It’s important to note that opportunities – even those lost – should usually be considered of good value to continue acquiring. It’s often the case that even though you may not have won the business that the opportunity was worth having. (Perhaps the sale was mishandled, etc.)
Predicting Campaign Performance

Typically, if we can analyze keywords, conversions, impression share and other metrics from an existing account we can project a number leads and sales that, if achieved, would more than justify the expense of implementing our technology, improving and continuing of ongoing management of a campaign.

The projected cost per lead and cost per sale usually compares extremely favorably against other methods of lead generation. What’s needed for comparison is the current cost per lead and sale from their other marketing programs. If that isn’t readily available, a simple estimation can be created by dividing last year’s marketing budget by number of leads generated.

It’s our goal to change the paradigm of measuring marketing effectiveness across all channels for all of our clients. We believe it’s a gamble worth taking because B2B industry reports unvarying report search marketing to deliver a lower cost per lead than any other channel.

Improving Exposure to the Most Targeted Visitors
A little known, but highly valuable, report in Google Analytics is impression share. This report reveals the percentage of time your ad appeared in the search results based on the total number of times it could have appeared if you weren’t out-bid for first page position, or didn’t run out of budget.

When we run impression share reports on many accounts it’s not unusual to see very low numbers.

This is a result of targeting keywords that are far too broad and limiting ad serving based on budget, and/or impression loss due to low position based low cost per click (bid).

Essentially, in these cases the campaign manager is abrogating responsibility to Google’s servers to randomly determine which visitors to show the ads. We believe it’s far more responsible to run a much narrower campaign focusing on the very specific keywords that have been proven to bring the right visitors and then managing the bidding and budgets to be in the results nearly every time.