Feb 252009

Q1 PPC Benchmark Data: Ouch!

Taking a look at the first month and a half of Q1, it looks like the pain in the retail sector is spreading and deepening.

We ran an analysis to show the year over year performance trends over the last 7 months or so. We took data from our 40 largest retail clients, and tracked the median of the year over year performance differentials in several different areas. For comparative purposes, we simply divided this years' numbers by last year's. 100% represents the previous year’s performance level that week. As the graph shows, the numbers are discouraging.

While a number of our clients asked us to sacrifice efficiency for top line sales in the early part of the downturn, most have chosen to pull back at this point and protect the bottom line.

We hit a wall around Week 37 of 2008 at about a 20% Year over Year drop-off in sales and costs, and those numbers have gotten slightly worse since Christmas.

Let's peel the onion to figure out exactly how the economic downturn has impacted paid search.

Pretty clearly there are three possible mechanisms that contribute to a decline:

  1. Decline in Sales per Click: if a smaller fraction of visitors through PPC ads make a purchase or the revenue per sale drops, or both then a retailer will generate fewer sales.
  2. Competitive Pressures: if declining sales per click force an advertiser to lower its bids more than its competitors, the advertiser will drop down the page and get fewer clicks per search.
  3. Fewer searches: tightening wallets may affect user behavior in another way. In addition to potentially lower Conversion Rates and AOV, one may well see fewer searches in general.

Take a look at the following graph showing YOY Conversion Rates and Average Order Values on competitive search. For consistency we're just comparing Adwords to Adwords.

YoY CR and AOV

There's some fascinating stuff here. First, note that late in the Holiday season, AOVs were pretty close to '07 numbers for most of our clients, but the conversion rate suffered. Since the start of the new year the problem has reversed: conversion rates are about where they were in early 2008, but the AOVs are off 10% or so.

Revenue per visitor is part of the problem, but by itself it's not the whole picture.

Could it be the competitive landscape? Are our clients having to pull back more than their competitors hence getting a smaller share of what's available?

YoY Position Changes

This suggests that our clients were about half a position lower than the previous year for much of the holiday season, but are actually higher on the page than they were last year at the same time. Averages lie, and medians of averages are a pretty squishy measure, but this suggests to me that our clients (and our analysts) have reacted appropriately to the landscape and efficiency needs, and that they're not totally out in left field compared to their competitor's reactions.

Competitive pressures may have impacted Q4 slightly, but don't explain the YoY drop in Q1 at all for our client set.

This leads us to the last explanation: traffic volume. Are there just fewer people out there searching for our clients' goods and services? Unfortunately this is among the hardest factors to gauge. Because of match-type and network partnership shenanigans, impressions aren't an accurate measure of anything. Click volumes are impacted by position on the page, so that's not the right measure either.

Instead, we picked "brand" traffic as a proxy. Figuring that our ads are in position 1 on our client's trademarks always, the traffic and sales volumes coming off of brand search may indicate general levels of demand as well as anything. This is far from perfect. Probably very far. Brand search is largely a function of other offline marketing efforts as well as loyal customers, so as our clients pull back on those efforts Brand sales may fluctuate. Also, customers may be more inclined to latch onto those organic links to affiliates promising discounts on retailer's brand names.

With those caveats understood:

YoY Brand Sales

This suggests to us that the main cause of decline is simply fewer people shopping. The people who are shopping are spending less, but the biggest dent has come from traffic.

We remain optimistic that these numbers will turn this summer and we'll start seeing growth again in Q3, but it could be a rough ride between now and then.

We wish everyone the best of luck in these trying times.


26 Responses to "Q1 PPC Benchmark Data: Ouch!"
EngagoTeam says:
Always wonder who clicks on the advertising. The Natural Born Clickers? http://www.smvgroup.com/news_popup_flash.asp?pr=1643 Maybe finally the advertisers start to understand a large part of the clicks are generated by this segment of people.
Roofing Guy says:
This is very interesting. From the research I had seen so far, the poor economy had driven more people online, because they were looking at all of their options instead of just buying locally. But as they say, "Number don't (usually) lie."
Hi Nathan, The numbers don't lie, but they also don't tell the whole truth. I haven't seen the numbers lately, but for a while there the offline retail sector was down except for Walmart. The deep discounters were stealing share from everyone else. Could be the same phenomena online, that demand for most retailers is down, but for the discounters... George
Less traffic is definitely a problem, at least for some industries. If a company has a few representative search terms, then you can get a better idea of of volume over time from Google's Insights For Search: http://www.google.com/insights/search/#q=flooring%2Cfloors&geo=US
Stephen Cobb says:
Thanks so much for sharing these numbers George, along with your very wise and duly noted caveats. If traffic has dropped, as your analysis seems to suggest, then it truly behooves e-commerce sites to make the most of the traffic that they do get. Of course, being in the post-click marketing business, that's a gong we've been banging for a while. And we are starting to see search agencies take a closer look. After all, if you accept the premise that there are limits to what search can do to boost a site's traffic/revenue when overall traffic is slipping, then it makes sense to try and lift the conversion rate and AOV for the traffic you do have. Thanks again for sharing the numbers and your analysis.
Thanks Stephen, We've been banging that drum for a long time, too. Given the availability of powerful tools for testing websites, there's no excuse for not trying to wring the most value out of the visits you get. As I discussed at Shop.org last fall, testing can be a long, frustrating process, and it's hard to measurably raise the bar on a good retail website, but a two percent improvement, though hard to detect, is material and who would turn down a two percent lift right now?
Marc Adelman says:
George, What an uncanny coincidence. These kinds of trends are showing up in every report I look at. The economy had a negative effect pre-holiday on the search industry, but I feel there was a renewed hope after a Holiday Season that exceeded many marketers’ grim expectations. 2009 though is settling in like a 800 pound Gorilla. Traffic is down - AOV is down, items per order, revenue per visit, and the sad line of KPIs follow all with their heads down. So what can we do but brave the storm... It is times like these though, that forces innovation, change, experimentation, and next generation ideas to be born. No longer can an SEM just push the pedal to the metal and perpetually drive revenue. Our relatively young industry is now just getting its call to wake up. Search Engine Marketing is still treated by many with traditional marketing concepts while it more closely resembles what happens when you put an exchange market and an IBM supercomputer in a blender. The people - companies that can breed innovation during this period will not only help themselves and their companies and or clients, but will hopefully help reinvent this industry. Thank you for sharing this data.
James says:
We started advertising again recently - and didn't have one sale in three days. Took the adverts back off and went back to relying on the search engines. At least that way we can provide a better price for our customer.
Thanks for your comments, folks. Marc, I may have to quote you on the blender metaphor! We've often scratched our heads when companies ask us for "a proposal". "Umm, we propose to manage your PPC program...well...?" It's not all that clear what we're expected to say.
Ryan Pryor says:
George, Given the reported rise in average ad rank, are you all having to adjust bids down to try compensating ad rank back down to any previously determined "sweet spots" of conversion or CTRs? or is .5 not enough to worry with yet? I'm thinking along the lines of your earlier post http://www.rimmkaufman.com/rkgblog/2008/09/30/position-bidding/ but i may be missing the question... Ryan
Hi Ryan, We actually don't believe in chasing "sweet spots". They are ephemeral, ever moving, different for every keyword and almost every moment of time and there's no way to see them. We set bids based on anticipated revenue per click and desired efficiency targets. Dropping bids to get lower on the page would improve efficiency, but we're not having any difficulty making the performance efficient. The point is that the performance IS efficient, we're higher on the page (generating higher CTRs), but the volume of traffic is down big time and top-line sales with it.


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