Search Engine Marketing: SEM - Are You Winning?

To those on the fringes, paid search engine marketing (SEM) can appear to be black magic. There are so many variables to get right — keywords, ads, bids, landing pages, offers, etc. — and the competition can be brutal. Before you know it, you're spending more than you can afford just to stay in the game.

It's common for smaller advertisers to turn a blind eye to their profitability and just spend the budgeted amount each month on SEM. If competitors are doing it, it must be beneficial … or so they reason. Money goes out the door each month, traffic accumulates, some sales are made.

It's not enough.

Are you reviewing the profitability of every traffic source? At a bare minimum, you need to have tracking in place to reveal the causal source of every goal or conversion on your website. This will enable you to make a solid connection between traffic from paid channels and conversions.

The good news is that all the major advertising platforms available provide ready-to-use conversion tracking scripts. If you haven't already, put this script in place on your goal page to enable granular reporting. With tracking in place, you have all you need to evaluate your success.

There are three reports that, more than any others, get to the bottom of your paid search profitability. They remove the success ambiguity. They'll only produce meaningful data if you're tracking your conversion down to the keyword level, but AdWords', Yahoo's and Bing's conversion tracking scripts provide this level of detail by default.

Report 1: 
CPA per Ad Group
If you have a predictable average order value with predictable margins, cost per action (CPA) is the number your advertising lives or dies by. It's how much you're willing to pay in advertising costs to make a sale. Too high and you aren't making the needed profits; too low and you sacrifice volume.

"Average" CPA for your account isn't what you're concerned with, though. Sometimes failure is hidden in a successful average. Certain ad groups are bound to be über-profitable — branded terms usually fall into this category. People who have the wherewithal to search for your brand name are much further down the buying cycle and tend to convert at a much higher rate.

Review a report detailing the CPA for each of your paid search campaigns and ad groups on at least a monthly basis. If your campaigns are structured correctly, the ad groups should each be attracting a distinct slice of your target market. Each of these ad group slices convert differently and cost differing amounts per click given the competition.

As such, your ad groups' level CPA's will reveal how efficiently your campaigns are being run. Wasted spend and undertapped opportunities will rise to the surface. Those managing your campaigns will need to take action to preserve the profitability of them.

Report 2: 
Value/Cost per Ad Group
If your order value (and margin) can swing greatly between transactions, you need more than the CPA metric. In these cases, CPA doesn't tell you how profitable you are because the actions on your site have differing values. CPA won't cut it, and neither will standard conversion tracking.

You'll need to take advantage of value-based conversion tracking to record the unique revenue or profit associated with each conversion. Assuming your shopping cart software has access to this information, AdWords' and Yahoo's conversion tracking scripts can be modified easily for this purpose.

Armed with this value-based data, you'll use value/cost or return on ad spend (ROAS) as your key metric instead of CPA. This ratio gives you laser insight into profitability. Of course, you'll need to establish your target value/cost or ROAS ahead of time. All ad groups will be judged and optimized accordingly.

Report 3: 
Search Query
The final report in the trio provides all the behind-the-scenes insight you could ask for. This report shows you the exact search queries people typed in that led to a paid click to your website. The keywords you're bidding on are often quite different from the keywords you're matching on.

At least 25 percent of all web searches are totally unique — search terms that have never been searched for by anyone before. You can't predict these keywords, so search engines try to decide which ones you would have bid on if you only knew. They aren't always right; waste is common.

After a careful review of this report, you can make decisions about which terms you want to exclude from your SEM spending. You can exclude irrelevant individual words and phrases, which will cut huge chunks of waste from your campaigns. A solid exclude list often moves the profit needle by 20 percent or more.

Don't be in the dark about your paid search campaigns. Enlightenment is only three reports away. ROI

Timothy Seward is CEO and founder of data-driven PPC management firm ROI Revolution, a Google AdWords, Google Analytics and Google Website Optimizer certified partner (www.roirevolution.com/about-us/index.php?utm_source=magazine_0610&utm_medium=print&utm_campaign=allaboutroi, timothy
@roirevolution.com).