A key aspect of a Chief Marketing Officer’s job is budgeting. Marketing spends and channel performance are key considerations.
Many CMOs budget for digital channels the same way they would for traditional media. When it comes to paid search this is a significant problem.
Nobody can predict PPC spends and revenue accurately if your budget is essentially leaving you with no option but to own top position.
Why is this? Surely, PPC is the most trackable and therefore predictable marketing channel?
Well yes it is trackable, however, there is a major X factor that is outside your control. This is the most important component that makes up the amount you pay per click.
It is your competitors.
Given the nature of the PPC auction, your competitors can derail you PPC targets by stepping up aggression and holding top position therefore increasing costs dramatically.
You see, you have a lot less control over PPC than you think.
Competitors are the Most Important Factor of Your PPC Performance
Your competitors ultimately set the price you pay per click. Basically (Ad Rank excluded) you pay one cent more than your competitor to achieve a higher position.
Therefore, if your competitor decides to maintain the top position. CPCs can increase significantly. This happens rapidly if there are a number of new entrants to the auction.
Imagine an art auction, two people are bidding on the same painting. There are no limits as to how high bids can go.
Now, imagine four or five people in the auction. This is what Google Ads looks like when there is a combination of new entrants and increased aggression from established players.
Budgeting for PPC Volume and CPAs is High Risk
As we see, competitors have a massive influence on your PPC targets. Imagine if CPCs increase by 100%. What will that do to your ad budget?
If a competitor enters the PPC auction with a different business model then this could spell curtains for your budget. For example, if a well-funded start-up with the objective of rapid growth comes up against you and you are managing your campaigns for profitability/ROAS. You simple won’t be able to compete.
Likewise, a business using Customer Lifetime Value as the core KPI will be able to outbid someone who manages towards a transactional/immediate payback goal.
How to Fight Back
View auction insights over time and monitor new competitors.
Hedge your bets. Make sure you have your SEO house in order and don’t wait for the last minutes because it will take at least eight months. SEO also requires a traditional marketing strategy to deliver brand ranking signals to Google.
Build a brand. This is the best way to avoid issues with PPC that are out of your control.
Remember the cheapest acquisition channel is direct website traffic. In an ideal world, you want this to be as big a percentage as possible.
However, you must invest in your brand to deliver sustainable direct traffic.
Make you engage and retain users/customers on social media. A lot of businesses do not use social media to its full potential. It is about brand building and keeping front of mind not just as direct response tool.
I am going to repeat this, Social Media is about brand building and not direct response. To see the true benefits of social media you need to zoom out to an 18 month view and compare.
A well rounded marketing strategy is essential for success. Things change so fast in modern marketing. Relying on a volatile channel like PPC that depends mostly on what others are bidding is a dangerous strategy.
So, the biggest mistake CMOs make with respect to PPC is believing that they have more control than they actually do.
Like any auction, its the other participants who set the price you pay. If your marketing budget requires top position on PPC to deliver sales volume then, you better hope no more competitors enter the market and that current competitors do not raise bids.
All in all, a good CMO will be able to make the required adjustments and scenario plan a number of eventualities.
As a result, a well managed company will be able to overcome an aggressive challenge on PPC.