Why Losing Money On PPC Is Not Really Bad

Writing by Brick Marketing on Wednesday, 9 of January , 2008 at 3:38 pm

DaveN wrote a great post PPC versus organic search. I think what a lot of small business PPC advertisers don’t realize when it comes to PPC is that the benefit is more than just your monetary ROI. There is more to measuring ROI than merely crunching numbers. There is also a credibility factor.

Let’s take a look at three different search engine marketing campaigns:

• The first campaign, we’ll call it Campaign A, uses organic search methods only
• The second campaign, Campaign B, utilizes PPC only
• Campaign C is a mix of both PPC advertising and organic search listings

The question is, who will get the greatest benefit from their efforts? Let’s assume a few things first.

• Assumption No. 1: All three companies are converting sales from organic searches
• Assumption No. 2: While both companies using PPC are converting sales, neither is converting enough sales at their bid prices to realize a profit
• Assumption No. 3: The company using a mix of PPC and SEO is realizing a 10% increase in sales conversions above and beyond the company using only organic search listings

Given this scenario, who is doing better? Campaign A is obviously making money. Campaign B is losing money. But what about Campaign C?

Since we don’t have real numbers in front of us, let’s analyze our assumptions and make three more:

• Campaign A is turning up a $1,000 per month profit
• Each PPC campaign is losing the company 10% of their revenue from all other sources
• Each PPC campaign is based on a $300 per month advertising budget

Now we have realistic numbers to look at even though this isn’t a real scenario. Company A is obviously making $1,000 per month. Company B is losing money on its PPC advertising, though we don’t know how much because we have no information on its revenue from all sources. But look at Campaign C:

• $1,100 revenue from SEO (see Assumption No. 3)
• Ad spend of $300 monthly
• While the PPC ads are converting sales, they are still losing money
• Isolating the loss of PPC revenue into a comparison between its SEO revenue, Campaign C is costing the company $110, degrading its SEO revenue to a mere $990 per month

At first glance, you might think Campaign C isn’t working. Campaign A is making $10 more per month. But the real determining factor is the fact that Campaign C is earning the company 10% more in revenue as a result of its PPC ads. This translates into a branding value that, in reality, outlasts the monetary gains the company is realizing. Though the net value in the PPC is a monetary loss, the actual value of the PPC is that consumers see that company as more credible than either of the other two companies. A certain number of people in any market will do business with the company that is using free advertising methods in conjunction with paid advertising methods and advertisers who spend money on radio and TV ads know this. That’s why it is difficult to place a strict monetary value on ROI when it comes to PPC advertising.

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Category: PPC Management, Search Marketing

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