What should you be getting out of your paid search program?

This is a surprisingly difficult question to answer. The CEO can see that Acme.com ads are higher than yours on the page or on his Hitwise report, but he can’t tell whether they’re flushing money down the toilet to get there, or whether their underlying economics are just as good as your own only on a larger scale. Most CEOs will assume the latter and take the marketing manager to task for not getting more out of search.

We’ve blogged extensively on how to assess the quality of your PPC program., but we thought it might be helpful to provide some other potentially useful data from what we believe to be “well regulated” programs.

Business Models and Brands

Traffic on your brand name and trademarks behaves differently from traffic on competitive search phrases. Costs are lower because there isn’t much competition and conversion rates (CR) are much much higher. These are loyal customers with credit cards in hand, ready to shop and declaring their intent to buy from you.

This difference manifests itself in interesting ways depending on your business model. For Catalogers, brand traffic converts at 7 times the rate of competitive search traffic! Not only that the orders tend to be larger as well. The non-brand AOV is only 85% of the Brand AOV. This makes sense. The folks who search for you by name know you and trust you, and may even have your catalog in front of them. Folks who are sniffing around on competitive searches are clearly less likely to drop big money with you as they don’t know you that well yet.

Take a look at the same numbers for other business models:

A couple of observations:

• Internet Pure-Plays have a markedly lower conversion differential between brand and non-brand than catalog firms. Perhaps this is the difference between having catalog in hand and not? Perhaps greater brand power, trust and loyalty developed over time? Other ideas?
• Brick and Mortar retailers’ brand conversion rate is only 50% better than competitive search phrases!?! Fascinating stuff! Compare to the catalogers numbers! The natural conclusion has to be that many of the folks searching for brick and mortar retailers by name are either using the store locater to then find the closest store, or are simply researching products online with no intent to buy online to begin with. The critical question remains: how much retail spillover comes from the competitive search phrases?

This conversion rate differential is important to bear in mind when assessing other programs as well. If your affiliate traffic conversion rates look like your brand traffic conversion rates that should send a strong message. Similarly, I’ve heard folks talking about natural search saying “only half my organic traffic is on my brand name therefore half of my untracked sales are from non-brand organic traffic.” Not a chance.

As the chart below indicates, for catalogers non-brand keywords account for 83% of the traffic from PPC ads. Because they cost more per click they account for 94% of the PPC Cost. However, because of the conversion differential they represent only 46% of the PPC Sales.

Notice again, and not surprisingly, the remarkable power of retail and catalog brand names when compared to pure-plays. Our friends at Amazon, Ebay and Overstock.com may be exceptions to this rule!

Unfortunately, much as we love it, we can’t do much to generate more brand traffic. The good manager focuses on what s/he can control. We recommend focusing on two ratios to assess the trends in your program: the fraction of PPC Sales driven by competitive non-brand search terms, and the percentage of total site sales attributed to those competitive terms.

Obviously what those ratios are depends on the power of your other marketing channels as much as anything. The more powerful the brand the lower those two numbers will be, but watching the trends over time can be useful.

Below are medians for our clients — half above, half below — these may be useful as benchmarks, but the trends are the key.

If those ratios are growing, and your non-brand cost to sales ratio is where it needs to be, your program is headed in the right direction…or the offline efforts are heading in the wrong direction :-)

Tomorrow, I’ll send around the same metrics looking at how the numbers shake down by different product categories.