Tuesday, November 01, 2005

Pay Per Click Your Way to Oblivion

What fascinates me is how some companies throw money out the window. I won't pick on anyone by name, but the reason you should care is because you are the loser. How so? Well, if a business wastes more money, that means less is available to improve quality of ingredients, less to build and deploy a well designed website ($$) for you to purchase from, and less to build value into Customer service and high quality employees.

Here is the deal- when you do a search on, lets say, Google you receive the "organic" search results on the left of the page. On the right are the "Pay per click" ads purchased by businesses targeting whatever keywords or search term you typed in.

Google's ad program is called AdWords, and is quite sophisticated in the functionality it offers to advertisers. At the core, an advertiser picks keywords or key phrases that they want an ad to appear for. Lets make one up- "Funky Extract". If no other advertisers are running ads for Funky Extract, it might only cost the advertiser 5 cents for each time somebody clicks on it.

In most businesses, certain keywords are very competitive because of their popularity- many advertisers want their ads to show when a search is done. The more the advertiser "bids" (called a cost per click) on that keyword, higher the ad places on the search result page.

What is happening is that some companies are bidding as much, or more, than the retail price of the product! For example paying $3 per click and the product sells for $3. Explain that to me (Some may be receiving co-op ad money to reimburse them, but then the manufacturer pays and again you get a lesser quality product). Most examples are for house brands, so the money is simply being pi**ed away.

Unless you have your own ad campaigns running (as we do) you have no way to see the bid prices, and no way to tell when this is happening. Certain supplement product keywords are bid as high as $3-4 per click. Keep in mind only a small percent of clicks actually result in a purchase, so the actual cost per sale can be astronomical.

We figured out the pay per click game a long time ago, our marketing expense as a percent of sales is about one-third industry average. We also use software to recognize and gather evidence for click fraud, which is about 30% of all clicks (if necessary, we can actually identify the specific computer the clicks came from).

Why do I take the time to share this with you? Just another way we add value to your ecommerce experience by keeping our expenses low, so that we can pass the savings along to you in the form of lower prices and higher quality.

Many businesses trying to play in the ecommerce sandbox, few have a commanding grasp of exactly what is involved.