We just finished a webinar on PPC and CRO that was, for me, one of the most fascinating I’ve participated in.
The reason is that Jim McKinley of 360Partners brought in some very interesting data on the relationship between PPC and CRO. You know how data gets me excited.
We also got some good questions that I’ll answer in this post. But first, the data.
The “Market Clearing” PPC Bid Range
This is the graph that got me excited.
If you took a keyword set, slowly changed the maximum bid and recorded the volume of clicks you were getting, you’d likely get a curve like this. The gray area indicates the part of the curve in which small changes in cost per click (CPC) deliver large changes in the traffic volume.
This is the price range at which more of your ads win, at which you get more traffic for your money. Traffic “clears” at these market prices.
Jim showed us an example from real life.
Here, you can see that “Client X” is in a marketplace in which the “Market Clearing CPC” is between $1.00 and $2.00 for a group of brand keywords. Yet, this client can’t be profitable at that level. They only make money on clicks prices between $0.30 and $0.60.
What are their choices? They can invest in other advertising strategies, or they can increase the number of clients they get from these clicks, making each click more profitable.
Jim’s team recommended that they NOT invest in paid search until they took some time to optimize their website.
This is the effect that conversion rate optimization has on paid search. It allows advertisers to bid at those high-return rates, the “market-clearing” rates.
If this doesn’t get you excited about the possibilities of combining PPC and CRO, you should have someone check your pulse.
Conversion + Search is a Natural Match
This shouldn’t really come as a surprise. The conversion rate is a function of both the traffic quality and the website effectiveness.
Paid search traffic is high-intent traffic. With the right ad this traffic can be phenomenal. Add to that an amazing landing page that keeps the promise of the ad and you have a powerful revenue-generating engine.
It’s Hard to do in One Agency
We talked at some length about the pros and cons of doing everything under one agency roof. It’s not easy.
The bulk of PPC services is billed on a “percentage of spend” model. Search traffic is bought like broadcast media, TV and Radio. Agencies have typically done their work and taken a percentage of the advertising fees paid to the TV or Radio networks. And now they take a percentage of fees paid to Google and Bing.
One thing we were clear on is this: [pullquote]You can’t optimize a site for a percentage of spend.[/pullquote] Jim’s team did the numbers, comparing the hours worked on projects to the percentage of spend coming from them. There was no more room for the kind of optimization that will make a difference.
Why do search agencies claim to do conversion optimization?
Three Types of Conversion Optimization
There are several levels of conversion optimization. The first is “better than nothing” optimization in which someone with experience applied conversion best practices. We stopped doing this at Conversion Sciences because it just doesn’t work, unless you get lucky.
The second is data-driven optimization, in which you make changes to a site based on data from analytics, mouse-tracking heat maps, session recordings, and surveys. In essence, you’re deducing best practices for a site.
The third is test-driven optimization. Those ideas you want to try that don’t have the support of data should be tested. We see split tests as the Supreme Court of data. This tells us exactly what will increase conversion and revenue, and by how much.
The fourth type of conversion optimization require a small team. A data scientist, a developer and a designer. This assumes the data scientist knows how to setup and QA a test. This doesn’t come cheap.
CRO Tools are New-ish
A PPC agency is going to have team members familiar with the collection and exercise of data. A design and development team is also common in such an agency.
However, the tools that make test-driven optimization affordable are relatively new, coming to maturity in the last four years. They are powerful and easy to misuse. Experience is the key.
The marketplace has a supply of experienced search experts. Conversion optimization experts are currently harder to find.
If I were to sum up our conversation, it would probably be that you must invest in both search marketing and conversion optimization to be competitive in the marketplace. The value proposition is just too strong.
Today investing in SEM and CRO will usually mean hiring two different agencies to do the work, or one agency charging a flat rate or time-and-materials for the combined service.
Agencies that staff for conversion optimization as a service offering will find it much more profitable than their search services, and this will be true for some time.
Questions from the Webinar
Bobby asked, “Once the in-house talent / resource gap is tighter where do you see CRO going next?”
The industry has been enabled by tools. I think the tools will get better and smarter, including using machine learning for real-time personalization. The role of the data scientist won’t go away, though. The machines can’t come up with hypotheses to test nor creative to try.
Rachelle noted that, “You are identifying the challenges between CRO and SEM services, however, many clients are looking for a packaged solution. What do you see as the offering around those type of requests? Are the clients going to need to continue to look for separate agencies to handle both segments?”
We think it will be separate agencies for now, but the value proposition of the combined service, and the profitability of conversion optimization in particular make integration a strong candidate.
PJ said, “I’m involving the sales team and using a CRM to take CRO to revenue.”
It is crucial to drive search and conversion down to the bottom line. For long-sales cycle offerings, the CRM is a requirement. You can pump more and more leads into the system, but if they are closing at a lower rate, you’re just spinning your wheels.
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