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The Dangers of Limiting Ad Spend to Hit EOQ Goals

It has become the practice of some advertisers to cut or eliminate PPC ad spend in the final weeks of the quarter and/or fiscal year for the sake of making the overall bottom line of all channels look better in the eyes of decision makers and stock holders.

As an analyst, I understand how important it is to have the numbers look good for periodic reports. That said, many advertisers may be limiting their paid search campaigns without fully understanding the possible consequences of doing so.   Here are a few things for any advertiser to think about before cutting back on PPC budgets.

Lost Orders Next Quarter…and Forever?

An important aspect of PPC to acknowledge is the click to order window involved.  Not everyone who clicks on an ad is going to make a purchase during the same session.  Shoppers may look around for days or weeks or even longer in the case of big ticket items before eventually making a purchase.  As such, a portion of each advertiser’s PPC orders can be attributed to clicks bought in past days.  Thus, when a PPC campaign is shut down for any length of time, it eliminates those clicks from occurring that would have ultimately converted in the future.

In the end of quarter budget reduction scenario, this effect would spill over into the beginning of the next quarter, affecting the numbers for PPC on that report.  Now in three months when the higher ups are looking for places to cut costs, PPC looks worse than it did in the previous quarter and, if it’s not doing as well, why not shave some ad spend again? And so the cycle of inefficiency can, and sometimes does, continue.

You Can’t Know How Much You’ll Lose

Trending product demand can come and go in a hurry.  As advertisers realize that a product is selling well, bids for the relevant keywords spike, then fall as demand for the good wanes.  Take, for example, the increase in demand for radiation protection supplements in the U.S. in the aftermath of the Japan earthquake that occurred on March 11th, 2011.

Bids for keywords related to these supplements spiked in mid-March as Pacific Coast residents feared the spread of rising levels of radiation from Japanese nuclear plants.  Demand was so great that some suppliers couldn’t keep radiation supplements in stock.  Those who failed to increase bids saw their ad position and traffic fall while other advertisers seized the opportunity, with some expanding their offerings to include radiation supplements they formerly had not carried.

By the end of the month, the scare was over.  This Google trends graph for the term “radiation supplement” shows just how dramatic the rise and fall of search volume was:

If a supplement advertiser paused their paid search for the last three weeks of the first quarter they missed this trend entirely.  Those who limited their budgets and failed to raise bids as conversion and traffic rose lost out on orders due to falling ad position.

Any time paid search spend isn’t being pushed as hard as efficiently possible, sales are being lost. In the case of short-lived trends, large numbers of orders can be lost in a matter of a few days.  Hard budgets and scheduled pauses undermine the possible gains of these trends and PPC programs should be flexible enough to incorporate an increase in spend during such spikes.

Inefficient Bids Upon Re-launch

Lastly, pausing ads for any length of time eliminates the most pertinent data to making informed bids:  recent performance.  The best scenario an advertiser can hope for upon reactivating a PPC campaign is that those keywords behave very similarly to how they did prior to shutting everything down.

At worst, market shifts may have completely changed consumer demand and the bidding landscape while the campaigns were dark, and it could take some time to find the efficiency sweet spot again.  In this case, the next quarter’s paid search data is once again being impacted by the short-term decision to cut spending at the end of the quarter.

Summary

While cutting costs at the end of the quarter may help the numbers to fall in line, this maneuver represents poor planning from the beginning.  If hard budget caps are necessary, efficiency targets should be established with those in mind.  Rather than waiting to reach these caps and then shutting everything down, targets should be modified to allow for the budget to sustain paid search through the end of the cycle.  This will prevent the click to order lag from affecting the next cycle’s numbers as significantly, as well as allow advertisers to spot and take advantage of potential trends.  By putting in the work ahead of time to effectively budget paid search, advertisers can get better results for the ad spend they can afford and save themselves from the long term consequences of temporarily limiting the program.

  • Andy Taylor
    Andy Taylor is a Senior Research Analyst at RKG.
  • Comments
    2 Responses to “The Dangers of Limiting Ad Spend to Hit EOQ Goals”
    1. Hi Andy,

      You’re completely right that it’s inefficient to completely pause campaigns due to budgets. All other things equal, spreading the budget across a greater number of days (with lower CPCs) will mean more visits for no extra spend. It’s something I illustrated in an article I wrote on my blog:

      http://www.calculatemarketing.com/blog/techniques/budget-time-for-budget-checks/

      That said, PPC budgeting rarely runs smoothly, and sometimes there’s little you can do when the client makes the call to pause PPC at the end of the month/quarter/year.

      Alan

    2. Andy Taylor Andy Taylor says:

      Hi Alan,

      Thanks for the comment. It’s certainly true that the final decision has to be made by the advertiser, and while many understand that cutting off or limiting the program is inefficient, few take into account the future consequences of doing so. If PPC budgets are absolutely necessary, there are real incentives to putting in the time and energy to try to get targets right from the start. And, from RKG’s perspective, the more a client can tell us about their budgeting needs the easier it is for us to help them reach their goals so that they won’t be forced to make a tough decision at the end of the cycle.