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PPC Outsource or In-House? Rules of thumb

A while back I blogged on the in-source versus outsource decision with SEM. Today, I want to go into a bit more depth on what those choices mean.

I’d argue that there are really three different models to consider with different flavors within each.

  1. Outsource to SEM firm with:
    • No oversight
    • Moderate oversight
    • Heavy oversight
  2. Insource with Rented 3rd Party Tools
  3. Insource with
    • Free tools or no tools
    • Tools built by your team

When does it make sense to outsource?

Outsourcing without any oversight is dangerous. Too many agencies will do nothing without oversight to drive them. Moreover, the best agencies need guidance from clients as to offer schedules, merchandising shifts, and evolving business goals, etc. The most productive partnerships involve dialog on the difficult questions of credit allocation, channel spillover, cookie duration, etc.

At the same time, it makes no sense to hire a management firm and not use their expertise. If you have to manage them through task lists, consider finding a better agency, or consider bringing the program in-house. Managing the managers is a waste of money on one side or the other.

It might make sense to outsource if:

  • You can cost effectively spend more than $20K per month in search advertising. Full service SEM fees start making sense at this point.
  • The best SEM firms can produce better results than your current solution. Note: it never makes sense to hire a lousy SEM firm, and unfortunately there are plenty of them.
  • You lack the internal expertise to manage search effectively at the needed scale. The internal team knows how to manage a couple thousand terms, but not tens of thousands.
  • You lack the IT resources to build your own tool set.
  • The cost of outsourcing is worth the benefits.

When does it make sense to in-source with rented tools?

Helpful criteria might include some combination of the following:

  • You spend enough in search to justify the cost of the tool rental. Compare these costs to full-service management before pulling the trigger.
  • You’re a internet pure-play very concerned about control. For many pure-plays, PPC advertising generates more than 50% of their business. Outsourcing half of one’s business can be unnerving.
  • You insist on having control, but lack the IT resources to build your own tools. Recognize that not all bid systems are created equal, and by renting someone else’s tool you’ve essentially bought into their black box, and won’t be able to tune it as you see fit.
  • You have the internal expertise and bandwidth to managing the program effectively. Particularly important that internal staff be adept at keyword creation on a sufficient scale for your business, as third party tools for keyword generation are poor and dangerous.

When does it make sense to in-source with only free, publicly available tools?

Google now offers bid management for Adwords. It’s not much of a system in that it only bids to the adgroup level, and only does that for high-traffic campaigns. But, it’s something. Is that and spreadsheet work enough for you?

In-House on the cheap makes sense if:

  • You’re just getting started in search. If your company is new to search we encourage you wade into the pool internally before outsourcing. Find out if there is a market before investing in an agency. There is a ton of information available online about how to manage a search campaign and not lose your shirt. The experience will be invaluable and will give you a better sense of whether to invest in a better solution.
  • Your business serves a very small audience. If the program is going to be small by the nature of your market, other management solutions will be prohibitively expensive.
  • Your business serves a limited geographic area. Local search is a nice product, but reduces the volume of search below levels that can bear more expensive solutions.
  • Your product offerings or services are few in number and can be easily and comprehensively described by a few hundred search terms. Managing the “long tail” is the hardest piece of the bidding puzzle. If you can grok the whole program easily on a spreadsheet, the high-end solutions may be unnecessary. Particularly if the market isn’t terribly dynamic and bids don’t need to be managed intra-day.

When does it make sense to in-source with custom-made tools?

RKG built our system based on a great deal of experience, marketing savvy, testing and knowledge of stats. We continue to make advancements in our approach. However, we haven’t cornered the market on knowledge, skill, smarts, and diligence. If you have the chops, building your own bidding system is possible.

Build-your-own may make sense for you if:

  • Your firm spends more than $1 million per month in search. The costs of building systems diminishes in importance as the scale of the program grows, because you’re spreading a fixed cost over a larger variable ad spend.
  • You have tremendous IT horsepower at your disposal. If the prospect of dropping a million dollars or more into API integration and tool construction doesn’t worry you this may make sense. Plan on rewriting chunks of your system every few months, as APIs are updated frequently (sometimes significantly) and bidding algorithms, processes should be revised and rethought as well.
  • You have the expertise in-house to build a top-notch system. This requires knowledge of search, knowledge of marketing complexities and deep understanding of statistics.
  • Your IT team has the technical chops to build a highly redundant failsafe system. You need multiple 9s of uptime, geographic redundancy, and high security. With high daily spends, bomb-proof reliable code is key, as mistakes or downtown get very costly very quickly.
  • You believe the system you can build will be as good or better than those that SEMs have to use. Recognize that a 95% solution is not good enough, as 5% of a huge program is a substantial sacrifice for control. On disadvantage SEMs have is that they are not experts on your industry. One key advantage SEMs have is that they serve a wide number of clients, and so learn more about best practices in a month than a single client might pick up in a year.
  • You have the skilled analysts in-house needed maintain exhaustive keyword lists, push-out relevant ad copy, and to study the data six-ways to Sunday to make sure the bidding system is functioning a peak performance. Doing paid search well is labor intensive, both in terms of building campaigns, but also in terms of spending the time analyzing the marketing angles and optimizing strategy. (Recalling Avinash’s 90/10 rule, a reminder that the full value of expensive technology is only obtained when you allocate sufficient payroll expense for smart people to drive it).

Great power and comfort comes from controlling every aspect of your program. At the same time, it is no small task to build the systems necessary to make that happen, and unless your firm is Amazon-esque in dimensions, this may not be in the realm of possibility.

Rented bid systems offer control over some aspects of search, but the critical piece of the puzzle remains off limits to internal scrutiny. This may be the best solution for companies that need the control, but can’t build the tools.

Partnering with a top SEM firm remains a great option for many companies. You get the benefit of top notch tools, and analytical expertise to guide the program.

When making this decision factor in the internal IT costs, the fees and the ongoing management expense of each model, and weigh those against the quality of results you see from each. Go with the model that gets you the best ROI.

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Comments
5 Responses to “PPC Outsource or In-House? Rules of thumb”
  1. Excellent analysis of the issues and trade offs. Anyone considering this decision would be well served to read your post. It is difficult to imagine any circumstance where it makes sense for an organization to build their own bid management system. It is hard to enough for most organizations to consistently deliver and evolve their core value proposition. I would also add to your list the requirement for easy to comprehend reporting that provides actionable insights. Marketing Sherpa’s survey last year cited the challenges of accurately measure ROI as one of the key issues influencing outsourcing. It would be great to hear your thoughts on rules verses portfolio based bidding systems. Thanks for the great post.

  2. Thanks for the kind words, Stephen!

    You make a good point about the need for coherent reporting, however, I’d argue that if you have the IT to build the API interfaces, and the marketing/stats knowledge to build a robust bidding system, reporting is trivial by comparison. The analyst in charge of getting the most out of the bidding system has to be able to go into the database directly, beyond any canned reports to look for commonalities and trends that weren’t anticipated by the report builders to find the hidden treasures that can be the difference between a good program and a great one.

    Our system at its core is a tiered portfolio system. However, we have rules overlays for our analysts to apply on top of the algorithm. For example, the algorithm doesn’t know that cashmere sweaters are 10% off this week, which will improve conversion rates and allow more aggressive bidding; it also doesn’t know that the retailer is running low on the normal sizes of a specific model of shoe. Human rule overlays allow for better anticipatory bidding than any purely reactive model can deliver.

  3. George,
    Yes, I am in agreement with you with one caveat. If the resources, tools and expertise are place… reporting would seem trivial. Which is why in our experience it is often overlooked, not robust, not easily accessible, not transparent and worse yet rolled up into summaries that may be presenting a mis-leading picture of performance for senior management.
    Your tiered portfolio system with a rules overlay conceptually makes a lot of sense. Any plans to commercialize it or make it a stand alone offering?

  4. No plans to rent the tool as a stand alone piece just yet. In the long run (5 years, maybe), I suspect the tools will become a commodity, and may be free. We think the core of our business and the SEM business will be the knowledge of how to use the tools, “wetware” as Dave Pasternack says.

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