Do the maths on your cost per enquiry. Please.

Yesterday I looked at some of the reasons why your company may not be using Google AdWords. None of these were good reasons – they were either excuses, or bad advice.

But let’s say you’ve got over these. You don’t mind a bit of hard work setting up and managing an AdWords campaign; you don’t care about your advertising agency’s vested interests in dissuading you from doing so; and you don’t mind your contemporaries not being able to see where all the money’s going, if it means an increase in sales enquiries from a decreasing ad budget.

I should point out that many companies, almost certainly including some of your competitors, have got over all of these hurdles, and are pouring money into Google AdWords. I could tell you of several engineering companies who spent their entire advertising budget on AdWords last year, and who will be doing so again in 2009 after seeing the results. I could tell you of a couple of scientific companies whose ad budget is going to be increasing this year (and how many of us can say that?), mainly because of the increase in AdWords spending, which they’ve been able to justify in terms of direct return on investment.

Ah, return on investment. As Seth Godin wrote recently: “If your ads work, if you can measure them and they return more profit than they cost, why not keep buying them until they stop working? And if they don’t work, why are you running them?” But what are the economics of Google AdWords ads?

Firstly, I rarely come across an industrial or scientific company which can track an enquiry source through to a sale. The sales process is normally just too long. So in assessing enquiry sources, I think we just have to accept that we can probably only track things so far – perhaps to name-and-address sales enquiry – and then assume (or hope) that whatever the source of that enquiry, the proportion converting to eventual sales is going to be similar. Not great, but it may be the best we’ve got.

Where I think a lot of companies are going wrong with AdWords (and subsequently overspending on it substantially) is that they’re not measuring it through to sales enquiry, they’re just measuring it in terms of traffic generated. In that case it can look cheap, or fearfully expensive, depending on which end of the telescope you look through. For example, a clickthrough from AdWords for a generic industrial product description (like “pressure sensors”) can easily cost upwards of £1.50. Just to get someone to look at your site, that seems quite expensive to me. Justifiably though, you might say: “But that’s £1500 to get 1000 people to look at my website. There’s no magazine in the world which could get 1000 people to take their interest further from a £1500 colour page advert. I’d have to spend £15,000 on an exhibition to get 1000 people to look at my products. And I’d have to send out 10,000 pieces of direct mail at 50p a time to get 1000 people to read them. None of these are guaranteed either, unlike AdWords, where you get what you pay for. So it’s a bargain!”

And in that sense, it is, which is why some companies are piling all their advertising spend into AdWords. However, we need to take it through to name-and-address sales enquiries.

Your £1500 colour page advert might generate 20 of these; your £15,000 exhibition stand might generate 100; and your £5,000 mailshot might generate 50. Do the maths, and your cost per enquiry for those three ranges from £75 to £150. For a similar return on investment from your £1500 Google AdWords campaign, you need to get between 10 and 20 enquiries – that’s a conversion rate of between 1% and 2% on the people you’ve sent to your website.

Would you get that high a figure from a Google AdWords campaign? You ought to, easily. But the important thing is: do you know? Are you measuring it? I suspect many of the companies, including some of your competitors, which are spending a lot of money on AdWords, aren’t measuring the rate of conversion of website visitors into sales enquiries – they’re just hoping it’s a decent rate. And that’s a lot of money to be throwing at a hunch.

I’ll be returning to this subject frequently over the forthcoming weeks, so do stay tuned.

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