Mar 09 2010
An unfair advantage in SEM
We all know how hard it is to consistently beat competitors at SEM.
The low barrier to entry doesn’t help. It is an uncomfortable feeling knowing that just about anyone with a credit card can become a search engine marketer.
The low barrier to creative isn’t that great either. Just when you think you have the best ad creative (i.e. the best 3 lines of text), a competitor goes and copies most of it, neutralising your advantage.
Even Quality Score is losing its competitive advantage, with Google offering automatic rotation of ad creatives based on click-through rate (a key quality score factor), and publishing of each keyword’s score along with several improvement tips.
There is however, one often ignored factor that can give search engine marketers an unfair advantage.
The kind that can help you consistently dominate your competitors, and is sustainable in the long-term.
That factor is Conversion Rate.
The immediate benefits of a higher conversion rate
Let’s assume that in your current SEM program, one of your keywords is converting 2% of your website visitors into a sale, and this is producing a cost per sale of $50.
Let’s further assume that you are happy with paying $50 cost per sale.
If you go ahead and redesign your landing page, and increase your conversion rate by 25%, two things will happen:
- You will now generate 25% more sales than before, and
- Your cost per sale will drop from $50 to $40, and
We all know about these benefits. But there is something here that is often overlooked by search engine marketers.
The unfair advantage revealed
Using the example above, you have now increased your conversion rate by 25%, and reduced your cost per sale to $40.
You have two options now:
- You can choose to do nothing. Just continue to generate 25% more acquisitions on this keyword and save $10 per acquisition compared to before
Or
- Re-invest the percentage increase in conversion rate, into a higher keyword bid
This latter approach is obviously a bold move. In the example above, you improved your conversion rate by 25%. So this means you would increase your keyword bid by 25%.
I call this approach Conversion Rate Re-Investment (CRR), and it can have profound implications on your SEM program – in terms of your click-throughs, sales, and cost per sale.
How will CRR affect my SEM program?
When you bid more on a keyword, something very interesting usually happens – your Ad Rank increases.
Remember the formula: Ad Rank = Quality Score X CPC bid
A higher ad rank means a higher ad position for your keyword. A higher ad position means a higher click-through rate (CTR). And of course a higher CTR means more click-throughs, and therefore more sales.
So even though you are bidding more aggressively, you are increasing your ad position, click-throughs, and sales, at an ROI that is just as cost-effective as the lower bid. This is exciting!
But you might be asking, “If I bid 25% more on my keyword, won’t I blow out my cost per sale by 25%?”
Yes, you will. But that’s ok.
Remember the beginning of this article? You had re-designed your landing page, and increased your conversion rate by 25%. This is going to act as an offset against your higher bid.
So this cost per sale ‘blow out’ is merely going to bring you back to your original $50 – which you were already happy to pay for every sale.
Consistently hit the top paid ad positions – within your cost per sale
As mentioned above, if you steadily and progressively increase your conversion rate against a particular keyword, you can steadily and progressively increase your CPC bids against that keyword.
In turn, this will generate a steady and progressive increase in your ad position against that particular keyword.
The implications of this are compelling.
Over time, and provided that your keyword’s quality score is competitive, you should consistently hit the top paid ad positions against that keyword.
All of this while maintaining your cost per sale.
In other words, CRR allows you to bid to the top paid ad positions, but without the cost per sale blow outs your competitors are probably experiencing.
How to increase your conversion rate
Obviously, conversion rate re-investment requires a steady and progressive increase to the conversion rate of your landing page. Without this, you should not increase your keyword’s bid, unless you are happy to pay a higher cost per sale.
So how do you go about increasing your website’s or landing page’s conversion rate?
In my next article, I will discuss proven ways to increase the conversion rate of your website and landing pages. This advice will enable you to start dabbling in CRR.
