When Not to Use Paid Search (PPC)

When Not to Use Paid Search (PPC)

Paid search is a highly effective means of “response” oriented marketing. And, as you saw in my article on using paid search for branding, it has some other applications as well. However, as with most other things in life, it’s best in moderation. With that said, here is my top 5 list of occasions when paid search may not make sense for a particular client or campaign.

1. Low Cost Product Sales
We’ve had more than one occasion where we were approached by a company wanting to do PPC for a low dollar value product. Paid search campaigns are difficult with low dollar products, especially those that are one-time sales where the end buyer isn’t signing up for a subscription. With a single-purchase, lower dollar value product, it’s very difficult to monetize profitably with paid search.

To evaluate if you can be profitable running a paid search camping for a low dollar value ($40 or less for the purposes of this discussion), take a look a look the average cost-per-click in the category. Let’s say for example you are selling a product, perhaps a Boil Buoy on your own website. The retail sales price is $9.99. Let’s assume you make a 50% profit margin, meaning it costs you about $5 to make the product. So to make a profit selling this product for $9.99, you can’t spend more than $4.99 to sell each unit. Realistically, it would be much lower, as you need to make profit and cover overhead and other business expenses that would likely be factored into your breakeven analysis, but we’ll say there are no other costs being factored in for the sake of simplicity. Now, if the cost-per-click in that category, is $1 per click, then you can break even selling this product (roughly) if you make 1 sale for every 5 clicks. That’s a 20% conversion rate of click to sale. Sounds pretty reasonable….right? Well considering the best e-commerce websites convert around 10-15%, it might be a bit lofty to assume your client’s website will convert anywhere close to 20%. If it converts at 10%, then you will spend $10 on PPC for every sale, which will result in a $5 profit, meaning you will lose $5 on every sale. Not a good long term plan.

If your client is a website like www.quirky.com that sells a variety of products, you will have to run a more sophisticated analysis to find the overall monetization rate for the site, and most likely analyze cost per click by PPC category, to find out what categories of keywords drive profitable visitors to your website. You will also want to consider the long term brand awareness of bringing new potential customers to your website, since some visitors might not buy anything right now, but might bookmark it for later.

2. No Tracking Capabilities
This one is simple. If your client wants to run a PPC campaign for something that is metric-driven such as lead generation, customer acquisition or product sales, and they won’t work with you to put adequate conversion tracking in place, you’ve now got a recipe for disaster. To know if your campaign is tracking towards the goals you have set, you need to be able to establish the performance, which requires tracking. I’ve had clients tell me “Well, we just know PPC will work, so let’s not worry about the tracking”. 9 times out of 10, this will end with one party being unhappy – either you or the client.

3. Lack of Budget
You’ve got a client that is very excited about marketing their product and they’ve even allocated budget to market it with paid search. Great! When you ask what budget they have allocated (or ideally recommend the budget), they let you know they have $100/month allocated. You know it’s not going to work. You won’t be able to get any usable conversion data. You won’t be able to efficiently manage the campaign or learn anything with such a low monthly budget.

4. Wrong Goals
Your client comes to you with a goal that is outside the realm of smart uses of PPC. You’ll probably know this when it happens. For example, you client tells you they have a great idea – they want to drive people to call them directly by putting the phone number in the ad. And they don’t need to allocate much budget, because they just want to have people call from seeing the ad, without going to their website. In the best case scenario, no one will click your ad and you’ll fail to gather any useful data through your campaign. In the worst case scenario, users will click the ad anyways, spending your budget, and leaving you with too little data to be useful. It’s a lose-lose.

5. Wrong Product
If you have a free app and you are trying to get awareness for it, PPC might not be the best solution, especially if you don’t have a plan to monetize it at any point in the future. If you have a paid app, such as an iPhone app, then think hard about what you are trying to do. If you think the product has great buzz potential, then maybe PPC can get some users of your app who will help spread the word (you should probably have a good plan for this as well). If not, and your app is $1.99..it will be difficult to profitably monetize it.

There are most certainly plenty of other instances in which PPC may not make sense. These are just a few I’ve run into in the recent past. Comment below and let me know what you’ve seen!

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Scott Kaufmann
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Scott is Partner at Lucid Agency and a lover of all things technology, marketing, investing and entrepreneurship. Scott volunteers on the board of the Denver-based Nonprofit Celebrate EDU and as a mentor for SeedSpot (a Phoenix-based social startup incubator).

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