How Much to Spend on Online Ads

When dealing with clients, I often get asked how much should I spend on online ads?

Now, quite a lot of people think that this is arbitrary, even some online marketing professionals. However, there is a method for working this out. I like to use it when trying to determine if an online campaign can work for a company. In other words, be profitable.

There are two main questions:
1) Can it be profitable?
2) How much can their cash flow withstand?

Let’s look at part one – Can it be profitable?

For those of you not familiar with financial management try not to be put off.

You should work out your Client Net Present Value over their relationship with you. If you just want one off sales, then the chances are, you won’t build a profitable campaign. The name of the game is client acquisition and relationship nurturing so you get repeat revenue year in year out.

For example, if the average contribution/profit per client per year is €1000, with the average relationship lasting 10 years and applying Weighted Average Cost of Capital (WACC) we find a discount rate of 15%.

Assuming you don’t increase your prices. Your NPV is €5,018.77.

If you can achieve a Cost Per Sale less than or equal to this figure then theoretically you can justify moving forward with the campaign depending on your cash flow situation.

Now on to part two – Cash Flow.

If you can achieve a Cost Per Sale less than or equal to the NPV, but are limited by cash flow issues, then use the cash flow limit as the price you can pay for a sale. For example, if your NPV is €5,018.77 but you only have the cash flow to cover €1,000 CPS then you should not pay more than €1,000 per sale.

So in this example situation, the company is prepared to pay the entire first year contribution/profit to acquire the customer who will stay with them for 10 years.

It’s important to do such analysis when researching a campaign. Understanding how much a new client is worth to you today is a fundamental element in building a successful online campaign.

Where Should You Spend Your Online Advertising Budget? – AdWords Versus Daily Deals

Recently the grandaddy of daily deal sites GroupOn completed it’s IPO. It achieved remarkable growth by offering city based daily deals that typically gave discounts of well over 50%.

Many business owners worldwide jumped at the chance of getting guaranteed clients without having to put money down upfront. On the face of it, when you compare it to other forms of advertising, and for the purposes of this post Google Adwords, it seems a no brainer. However, I believe that this is most definitely not the case.

There are a number of issues with daily deal sites that you must consider.

1) People are customers of the daily deal site and not your business. They are more likely to buy the next deal in your space than return to your shop or salon.

2) They cheapen your value proposition. If you can offer 70% discounts surely your offering was not worth the price you originally charged for it. Would you pay three times the price for something you previously bought on a daily deal?

3) Aggressive up-selling is necessary to turn a profit. Because daily deal customers are less likely to return, you must apply aggressive tactics to turn your loss on the deal into a profit by selling other items etc.

4) You may have received a lump sum of tens of thousands of euro but will this even cover your staff costs to service the deals?

5) What about your current loyal customers. How will they react to others getting a deal. How would they feel knowing that you can discount 70% on the products they buy every day/week?

Google Adwords is different. There are risks if you don’t know what you are doing. It’s only one component in an overall marketing strategy. It takes cash upfront to make it work. It’s also a gradual process where you improve your conversion rate and therefore the performance of the AdWords campaign incrementally.

Here are some issues that business owners must consider when opting for Google AdWords.

1) AdWords requires Landing Page Optimisation (LPO) to work. This is something that most business owners don’t factor into their decision making. Without LPO, AdWords can cost you big time. On the other hand, with LPO, AdWords can be extremely profitable. Going from a conversion of 1% to 2% doubles your sales and can turn a loss making website into the biggest profit centre of your business. This requires statistical analysis of all elements of your landing pages along with A/B testings.

2) You need to follow up with a sales script. The Celtic Tiger stunted the typical Irish business owner’s ability to sell. Selling was too easy during that time, and the vast majority of successful businesses didn’t need to work on their sales scripts. Times have changed. Businesses using Pay Per Click (PPC) platforms like AdWords need to develop effective sales scripts.

3) You can build your own list. Daily Deal sites are just marketing lists that get an email everyday about a cheap offer. Why not get build your own list so you can control the conversation with your customers? This will help you get repeat purchases

4) You can position your business at the quality end of the market. This is something you can’t do with daily deal sites. Actions speak louder than words and when you discount heavily on daily deal sites nobody will take the quality of your product seriously.

Overall Google AdWords is what I advocate businesses to spend their advertising budget on. Those that argue that there is no cost to daily deals are not analysing all the facts. Businesses have to pay for staff and materials to service these deals. If there is no upsell your accounts for year end will show a loss for the deals. Remember, that if you offer a 70% discount you are likely just to get 15% of your typical sales price (daily deal sites usually take 50% of the 30% discount price).

I realise that it does take a lot of work to make an AdWords campaign profitable and giving great returns. However, it’s worth it in the long term and over time the benefits of such a campaign far outweigh the benefits of a daily deal site.

I am interested in hearing what you think.

Landing Page Optimisation is Essential

Would you build a house without first laying foundations? Of course not, however the vast majority of Irish SMEs are doing the equivalent with their internet marketing campaigns.

PPC, SEO and referencing you website in offline marketing materials is pointless if you have not already done Landing Page Optmisation (LPO). You must find out your optimal value proposition, page layout, type of media to use e.g. video (if any) and web form layout.

In order to do this, you must must run a number of Internet marketing experiments. This is the single most important component in any Internet marketing strategy. Increase landing page conversion and you increase your website’s profit and Return on Investment.

Work done here will improve the performance of all other aspects of your Internet marketing strategy. If you have a website and you haven’t put it through the Landing Page Optimisation process you are losing sales by the bucket load.

As I always say, without Landing Page Optimisation you are relying on pure luck to makes sales online. You may as well take the money you spend on online advertising and start buying lottery tickets instead.

The Importance of Financial Analysis

The purpose of your website is to generate profit for your business. Therefore, you must apply financial analysis in order to determine how your site is performing but also (and more importantly) how it can be improved.

Remember, the language of business is finance.

Internet marketing is all about testing, measuring and analysing. The most important element of this, is using profitability as a key criteria for Internet marketing decisions.

When a business implements financial analysis on their Internet marketing (including website) they have a massive jump on their competition. In Ireland, a vast majority of businesses do not apply proper analysis to their online marketing. Therefore, a window exists to get more new customers by applying structured financial analysis to your online marketing decision making process.

For instance, one technique that should be applied is the Net Present Value (NPV) of future client value. This helps you determine how much is a profitable customer acquisition cost. As a result, it helps you make decisions on ad bids and on profitable conversion rates.

It also should be built into your price setting process.

In essence, financial analysis should be the cornerstone of your Internet marketing and web design.

New EU Cookie Law

Revised legislation for the EU’s e-Privacy Directive means that a vast majority of EU countries are now violating the law.

The European privacy law requires websites within the EU to obtain a visitor’s consent to install a cookie in their browser. I believe the law is badly drafted and should be revised to ensure that browsers make the request. Otherwise, you will be asked if you wish cookies to be enabled every time you visit a site. The only way to avoid this, is to allow cookies to be stored.

There are already browser add ons that allow the user to block cookies on a site by site basis. NoScript for Firefox is one.

The UK have taken a practical approach to this by allowing 1 year for businesses to comply with the EU law.

Huge hit for online advertising

However, this has huge implications for affiliate marketers. These are companies that run websites and collect referral fees for products sold. Most of the tracking is done via cookies. As a result, many websites will take a huge hit financially.

On top of that, websites that use Google Adsense and other ad networks will also be effected. Third party cookies are the main concern. However the prominence of Google Analytics and Facebook like buttons etc. mean that most Irish businesses must provide a cookie opt-in to comply with the law.

I believe that the EU should appraise the financial implications of the legislation. No doubt, it puts EU businesses at a distinct disadvantage to their non-EU counterparts. It could cost EU businesses billions per year when you factor in both direct and indirect revenue lost.

I believe that the legislation is unnecessary. However, we have to deal with it. I will be keeping a close eye on the Irish Government’s actions. Hopefully, they will take the same level headed approach as the UK by allowing businesses one year to comply.

This TechCrunch article sums it all up.

VIDEO: Most Important Factor in Online Conversion

Here is a quick video on what I find to be the most important factor in converting website traffic.

Most Important Factor in Online Conversion

The more I work on improving websites the more I realise the importance of solid marketing fundamentals.

The most important thing a business needs to do in order to build a successful online campaign is to get their value proposition right. This is not as easy as it sounds.

Your value proposition could be a special offer, a key benefit that you highlight or a problem that you solve.

In most cases, you must test several value propositions, headlines and sales copy in order to find the best value proposition for your product/service.

The best way to do this is live testing of different landing pages using PPC ads to generate traffic.

In a way, it’s like opening a combination lock. When your value proposition matches the visitor’s desire then you make more conversions.It’s simple when you boil it down.

However, in order to be successful, you must take a scientific approach. In other words, let your bank account tell you what’s the best value proposition. Don’t allow your own preconceptions get in the way of making profit.

Second after value proposition is credibility. Then third on my list, is landing page layout. Ideally, your landing page must be clear and concise and contain one value proposition and one action per page.

So, when you start planning your campaign, spend a significant amount of time working on your value proposition. It’s the corner stone of your online marketing campaign. All other components are built upon it.

 

The Two Best Approaches to Selling Online

Right now, Internet Marketing is trendy. Business owners are swamped with different marketing techniques and tactics. You have “Social Network Marketing” on Facebook and Twitter. You have “Search Engine Optimisation” and “Pay Per Click Ads.” You have “Article Marketing” and “Video Marketing” etc.

And you know what, you could employ all the above tactics and not make a single sale. You see, the problem many business owners have is that they believe that just by employing the basic techniques they will make sales. This is most definitely not the case. These techniques are only as good as your value proposition.

To be successful online, you need to forget about all the internet marketing tactics (I call them megaphoning tactics) such as PPC ads, SEO and Social Media and focus on your target customer. Your value proposition must be a perfect fit. How you approach this can be simplified into two main areas.

1) People are actively searching for your product/service.
2) You have a new innovation but people are actively searching for a solution to a problem that your product solves.

For people who are actively searching for your product you play “snap.” It’s exactly like the card game. Your goal is to match their internal thought process. It’s a bit like opening a combination lock when you “match” it on enough levels, the lock will open and you will make the sale.

Your sales process should emphasis clarity over persuasion as Internet Marketing expert Dr. Flint McGlaughlin from MarketingExperiments.com regularly states. You should ad credibility and be specific with statements.

Another secret that many non-marketers don’t know about, is that you don’t just write one marketing message. You work copy around several value propositions and test them. You keep the one that makes the most sales. You must let your target market tell you which is the best one with their actions.

For the second method, and this applies to a lot of start-ups with new innovations, you must angle your new innovation as a solution to a problem. Your search engine advertising along with ad placements to attract traffic should reflect this theme. Your value proposition will be weighted more towards solving a problem than method one. You must back this up with clear results showing that your innovation works. Again, you must test several value propositions to find one that will give you a worthwhile Return on Investment.

One you have established a profitable value proposition then roll out your social networking, PPC, SEO etc.

When I see businesses jumping into Internet Marketing tactics before they have worked out their core value proposition it reminds me of a shopkeeper paying money to advertise a shop that’s door is constantly locked.

Remember, megaphoning tactics require something of substance to megaphone. Make sure your conversion rates are high enough to turn a profit before investing the time, money and energy on Social Networking, PPC, SEO, Video Marketing etc.

Groupon Vs Google Offers Vs Facebook Deals

The biggest development in the small business marketing space in the last two years has been group deals. GroupOn have lead the way but their success has drawn the attention of hundreds of imitators. You see, the technology behind GroupOn can be bought off the shelf for a few hundred dollars. However, their true value does not lie in the tech it resides in the marketing list that they have accumulated. They have leveraged Google Ad Network and Facebook Ads to build lists of people who are interested in getting bulk deals for their city.

They are a triumph of paid Internet advertising (that’s another blog post). So with the launch of Google Offers and Facebook Deals, their two biggest marketing channels are now entering their market space.

So what does this mean for GroupOn? Well, they are used to competition. GroupOn clones have sprung up in every city and the market still does not seem saturated. If anything it’s these GroupOn clones that will lose out. Also, people who have signed up to GroupOn, signed up to receive emails on deals in their city. People on Facebook and Google may not necessarily want this type of notification. They are going to have to convert current users to opt-in to their deals.

What it may do is squeeze profits for group deal companies. Currently they take between 30% and 50% of the deal price. I can see Google and Facebook taking a little less to attract businesses to use their service.

From a small business marketing perspective I believe that group buying is not as great as everyone makes out. It can work in some cases but in a vast majority it doesn’t.

Yes you get cash flow but the extreme discounts mean that many deals end in a loss for the business concerned. They are pitched that some customers will return for full price services. I am skeptical about this, because the type of person who uses a group deal will simply use another deal from a different business, when they require the same service again.

For restaurants it may work if customers are upsold wine etc. But overall it ruins the repeat business aspect of marketing. Smart marketers know that repeat business is the holy grail of marketing.

It also devalues your service. If you can afford to give 75% off now then you must be really ripping me off at full price. My advice to small business owners is to think long and hard about “unintended consequences” of group deals before they take the plunge. They should develop a strategy to upsell as much as possible.

I don’t believe that added competition from Facebook or Google will have much of an impact on GroupOn. People will go for the best deals whatever platform they are offered on. As long has GroupOn maintains and grows their list they should be fine. We have yet to establish a scarcity point in this marketplace. I think there is room for more competition.

Facebook Deals for Irish Businesses

I was checking out techcrunch and found a very interesting article. They found a web page on the New York Times site that had some interesting information on Facebook Deals. Those of us that have been keeping up to date in the group buying space have been aware of the impending arrival of Facebook Deals. Now it seems that the platform will be test launching in five US cities. These cities were mentioned on the Landing page of Facebook Deals.

They aim to take on GroupOn. GroupOn has received about half the amount of funding Facebook has to date. GroupOn has received $1.14B while Facebook has received $2.34B.

GroupOn’s business is marketing to a list that they have built through Google and Facebook ads. Facebook already has the biggest list but I see that their deals will spread by people posting and liking deals on their Facebook “News Feed.”

It also seems that Facebook Credits can be used to buy deals. We need more info to see how this will work.

This could change up how businesses market their products. However, it may not be all positive. If more deals are being offered it will make it harder for businesses to charge regular prices. Many local businesses will have to rethink their business model.