“How much of my marketing budget should I allocate to Paid Search advertising?” This question must be answered by every business leader who sells or advertises products or services online. While each business is different, there are some principles that can be applied across most industries and business models.

The thread below describes how these principles applied to one subscriber – also a Paid Search Certification course student – for her online business.

Question from subscriber:

I used the [MEC] calculator to figure out my break even CPC – but the bigger question is – what % of my Marketing Budget should be allocated to PPC? Is there a formula to figure that out? Right now I’m spending 4k a month with Reach Local and that was a number that my CEO and I sort of just pulled from the air. Before we started using Reach Local, we were handling PPC in house with Google/Overture and they were spending about $3k. But no-one has ever analyzed what the right number really is. Let me know if there’s a formula or percentage or something that I should be working from.

Answer:

Presuming that your goal is profit maximization, you will want to allocate your marketing budget according to the channels that are the most profit intensive; that is, those with the greatest ROI. Best practice is to determine the ROI for each of your channels and focus most of your attention (and budget) on those with the highest ROI. So, if you know that one marketing channel is generating a 10% net product profit margin and a different channel is only producing a 5% margin, then you will want to focus as much of your budget on the first channel as it will sustain at that performance level. Then, allocate resources to other channels in descending order of performance.

Of course, until you’ve tested a given channel you cannot know how it will perform, so you will want to reserve some of your marketing budget and attention to seeking out and testing new methods and outlets.

That said, there is an additional practical consideration. For most companies, cash flow is a factor. Payment terms for competing channels and your own cash reserves and receivables profile can significantly influence the optimal allocation of marketing budget. If the PPC engines insist on daily reconciliation while you can get 30-days-net terms for an online newsletter ad, you might direct some money there, even with a lower ultimate ROI, because the payment won’t come due until after much of the cash arrives from sales it generates.

Thanks for your question.

We were surprised (as we sometimes are during tests) to find that a newly designed offer page advertising an online subscription product which included a video from the founder of the company, explaining the product, converted much lower than the same page without the video:

Figure 1: Percentage of users who continued through each step of a subscription offering, by offer.

This was confusing to us. Shouldn’t the founder of a company personally explaining the features and benefits of a product sell the product better than a plain text/graphic page?

What we found was this:

A portion of the users could either not hear the sound or watch the video altogether, therefore missing out on the main point of the offer.

Those that did watch the video (indicated by the fact that they also made it to the next step of the registration process) were much more likely to continue the process.

If a user actually watches a video, it appears it does increase the overall conversion rate, however if they miss it somehow, due to technical issues, then they are not as likely to purchase or take action.

The following inquiry from a subscriber reflects a question that eventually faces everyone who embarks on the journey of Online Marketing / Online Testing.  It is the question “How can I decide what to test?”, and the correlary, “How should I decide what to test first?”

Question:

From [your material related to online testing], I understand that the proper research question is typically a "which" question.

But how do we know what to test? What is the variable that makes a difference? […]
The process I can appreciate will be unique to the research objective. But what are the indications that something ought be tested? How do we know it's the headline?

... Can you comment on this based on your experiences?

Our reply:

Thanks for your question, I’ll be happy to.

In general, you will use a combination of your metrics tools (business and site) and your knowledge of your specific product market and customer demographics to evaluate the improvement potential and select the variables with the greatest opportunity.

At any given time, you have a specific value proposition and offer process. Unless you are already the dominant market leader, and you believe that you already have reached market saturation, then there is potential for improving your business performance. The order you should address optimization is important.  You should begin by optimizing your Product Factors, then optimizing Presentation Factors and finally Channel Factors.

Optimizing your Product Factors means ensuring you have the best product value proposition, which is a factor of the value of the product (including supporting services, etc.) and the Offer. Once you have optimized the Product, then you will focus on Presentation Factors. This means looking at your site statistics, navigation logs, etc. and determining where you are losing visitors in driving them through your “conversion funnel”; the yellow-brick-road to your site’s primary objective (i.e. a Sale, a Subscription, etc.). Then, you will select the variable(s) associated with those abandonment points to identify which Presentation Factor variables to focus your optimization efforts on next. Finally, when you believe you have tested and optimized to the edge of the “diminishing returns” point on Presentation Factors, then it’s time to focus on Channel Factors; that is, driving as much traffic to your high-converting site as you can at the lowest possible cost.

I hope this is helpful. If you have additional related questions, please continue to post them. Thanks again for your question...

A subscriber recently wrote to us with the following question regarding multivariable (a.k.a multivariate) testing and organization structure.  Below are our thoughts.  What is your organization doing? 

Question:

With Multivariate testing quickly picking up momentum and becoming an essential tool, We have seen the need to give multivariate testing its own position and resources and I was wondering if you would have any insight on what others in the industry are doing regarding positions, departments, pay etc...(we are in the dark in this area).

Reply:

Thanks for your question. While certainly organization structure is very company and situation dependent, I am not aware of any companies that have split out Multivariate testing into a separate department or position. Perhaps other subscribers can weigh in.

Some related thoughts, though.

• While there are differences in tools and terminology, the essence of testing theory are common between A/B and MV methods.
• If your organization and testing needs are such that it makes sense to employ specialists in specific testing sub-disciplines, then that might seem a logical way to structure.
• An auto repair equivalent might be employing a carburator or hydraulic-systems specilist. It only makes sense if there is enough discipline-specific work demand to justify employing a specialist.
• Alternatively you might have a pool of practitioners competent in the broad category of Testing Professionals and then offer "specialist" training to individuals based upon work demand, competency and interest. Presumably these people would be compensated for their additional advanced skills.

Benefits of this approach include flexibility, greater ability to balance workload and employee motivation to qualify for advanced training.

I would be curious to know how many of our current subscribers have specialists in their organizations for Multivariate testing (or other online marketing sub-disciplines), and if so, how they are structured.

The day after Thanksgiving is when retailers traditionally are considered to have covered their annual expenses and be operating on profit. Hence the term “Black Friday” in reference to black ink on financial reports. It is also traditionally the highest sales volume day of the year for retail and consumer services merchants.

But if you didn’t realize legendary gains on Black Friday, all is not lost. Our research has found that for each of the four remaining weeks leading up to Christmas is more profitable than Thanksgiving week, and that what day of the week that Christmas falls on will determine the optimal timing for offering special last-minute promotions for maximum profit.

In a brief MEC posted earlier this year, we observed that the top 10 shopping days for two consecutive years are spread over an eight week period, starting at Thanksgiving, and that less that 10% of holiday sales volume is accounted for during the Thanksgiving weekend that includes Black Friday. Using the MEC 2006 Holiday Merchandising Calendar, specific guidelines for special holiday promotions and 15 suggestions for optimizing natural buying trends online, you still have time to turn Black Friday blues into a bright (and “black”) 2006 holiday season.

You will find the brief here: MarketingExperiments Merchandising Calendar for the Fall & Holiday Season 2006.

We received the following inquiry from a subscriber and the question is one that affects many professional marketers who utilize paid search.

Question:

Most accounts I am working on use the current website and leave it to the account manager to determine which pages are best to use for each adgroup/or keyword. As the next step, which is creating new landing pages targeted to specific keywords what quadrant of traffic do you recommend starting first?

Q1-high cost non converters
Q2-low cost non converters
Q3-high cost converters
Q4-low cost converters

Reply:

Thanks for your question. Using the categories you’ve specified, I would recommend two steps – one as a Channel Factor item and the other as your Presentation Factor item of landing page creation.

First, as a matter of search marketing practice, you should analyze the “Q1 - high cost non-converters” group to establish how much of the conversion problem is due to poor prospect targeting and how much is due to poorly-converting site pages. That is, if you have a large number of clicks from people who looking for something completely different from what you have to offer, then landing page selection will have no benefit. This problem can be caused by ineffective keyword selection, poor ad copy, and other factors.

Presuming that has been done, you should prioritize each quadrant based upon conversion and traffic level as well as keyword price. What makes for an effective marketing campaign, especially using paid search, is Return on Investment. You will want to target the traffic first that has the greatest potential for benefit from the boost in conversion that you seek by landing page selection / creation. That is, if the traffic level for “Q1 – high cost non-converters” is only 10% that of the “Q2 - low cost non-converters”, then you may want to focus on “Q2” first since not only will the same level of conversion gain translate to a larger number of sales, but further, you “keep” a greater percentage of each new sale.

Thanks again for your question.