Contact:
Ryan Gibson
The Rimm-Kaufman Group
434-970-1010, ext. 110
ryan@rimmkaufman.com
www.rimmkaufman.com

Charlottesville company named one of Inc. Magazine’s fastest growing companies

Charlottesville, Virginia, Wednesday, August 20, 2008. The Rimm-Kaufman Group, a Charlottesville-based search marketing agency, has been named to Inc. Magazine’s list of the Top 500 Fastest Growing Private Companies in America. This prestigious list, which has been published annually since 1982, is a leading index of the manufacturers, service providers, and entrepreneurs that fuel our nation’s economy. RKG appears on the list at #315, and is ranked 24th in the Advertising & Marketing segment.

“We’re beaming that RKG made the Inc500, though I am still a little surprised,” said Alan Rimm-Kaufman, RKG founder and president. “We’ve bootstrapped the company, placing our emphasis on creating a great place to work and on providing great value to our clients. Rapid growth wasn’t our objective. Online advertising has boomed, and we’ve grown along with the channel. I am tremendously proud of what our team has accomplished.”

Inc. Magazine based its rankings on percentage revenue growth over the 2004-2007 time periods. The list is comprised exclusively of privately held, independent companies headquartered in the U.S.

Pay-per-click search marketing — sponsored links on Google, Yahoo, MSN, and other engines — has grown into a $10 billion a year industry. Many large advertisers rely on specialized search marketing agencies like RKG to manage their search campaigns.

Over the past three years RKG has grown nearly 900% and currently manages search advertising programs for more than 100 clients, from internet start-ups to online retail titans.

“To me, the greatest joy has been in the manner of growth, not the amount of growth,” said George Michie, RKG co-founder and current Principal of Search Marketing. “We’ve grown on revenues; not VC funding, not loans, not acquisitions, but rather from providing great service to a growing pool of clients. Moreover, we’re doing it in a way that generates quality jobs and career options in my home town without grinding our employees into the ground. People work hard here, but its 40 hours a week, not 60. That’s important to us.”

“We’re looking ahead to continued steady growth,” Rimm-Kaufman added. “We’re actively hiring, especially software developers.”

# # #

About The Rimm-Kaufman Group (RKG)

Based in Charlottesville, Virginia RKG was founded in 2003 by Alan Rimm-Kaufman and George Michie. RKG manages nearly $100 million in online search advertising and employs more than 40 people.

For more on The Rimm-Kaufman Group please see www.rimmkaufman.com

For more on the Inc. 500 please see www.inc.com

Steve Yegge usually rants about programming, not business. So nearly all of his excellent diatribes are off-topic for our marketing/business blog. This week, however is a business topic: Steve attacks “gathering business requirements.”

Yegge’s point — if a company needs research to determine what customers want, then the company is probably too far from the customer, and the software or product they produce will likely miss the mark.

You can look at any phenomenally successful company, and it’s pretty obvious that their success was founded on building on something they personally wanted. The extent that any company begins to deviate from this course is the extent to which their ship starts taking on water.

And the key leading indicator that they’re getting ready to head off course? You guessed it: it’s when they start talking about gathering business requirements.

Because, dude, face it: if it’s something you want, then you already know what the requirements are. You don’t need to “gather” them. You think about it all the time. You can list the requirements from memory. And usually it’s pretty simple.

Steve Yegge: Business Requirements are Bullshit

Far more important than getting on lists are things like good relationships with employees, customers, vendors, and prospects. Adding value. Working hard. Being honest. And generating sufficient profit to keep running.

That being said, for the second year running, we’ve had the honor of being named by Internet Retailer Magazine as the second most prevalent paid search agency among the top 500 online retailers.

Online retail is our firm’s focus and our heritage. We like serving online retailers. And we’re darn proud to make IR’s top vendor list again.

We’re proud to serve such great clients.

All of us here at RKG offer huge congratulations to our clients who made IR’s ‘08 list. We hope our work for you this year can help you move up on the ‘09 list.

To all of our clients: we greatly appreciate your business.

If there are ways we could be serving you better, please let us know.

Thanks.

How much can you afford to spend on marketing? This simple little question hides some vexing issues that are worth exploring during rocky economic times.

Suppose you budget $200 to buy a DVD Player. When you arrive at the store you find the model you want is actually on sale for $100! You arrive home, your 5 year-old hears the good news, grabs the left over $100 and feeds it into the paper shredder. You are: a) indifferent because you planned to spend $200 anyway; or b) irate because your son just wasted $100?

Is this happening in your PPC program?

Let’s take a hypothetical retailer with 50% gross margin on all products and 10% variable costs tied to credit cards, pick and pack, cardboard, commissions, etc. They’re willing to spend the rest (40% of Sales) on marketing to capture as many orders as possible at break even and then make money on lifetime value. Their targets and goals aren’t really the point; the point here isn’t about setting targets, it’s finding out what goes into hitting the target.

Let’s say their PPC Search program (excluding their brand terms) spends $160K per month and generates $434K in sales for a 37% Cost to Sales ratio. On the surface, it appears that this program hits on all cylinders and achieves the desired metrics.

However, it’s important to look at both the averages and the incremental efficiencies to really determine if the program is doing what makes the most sense for the company writ large.

WARNING: THE FOLLOWING CONTAINS GRAPHS…

The mechanics are different, but the math is very similar to catalog circulation. If we look at the paid search spend in incremental chunks, like mailing segments, you’d obviously buy the most efficient advertising first. The law of diminishing marginal returns would then show that each successive advertising chunk would be somewhat less efficient than the last. So, for our hypothetical retailer, the curve might look like this:

Graphically, plotting the $10K chunks of ad costs on the horizontal and the resulting sales and Net Margin on the vertical you see a classical representation of diminishing returns.

Let’s look at these same numbers a few different ways: first, let’s see what happens when we plot just the “incremental sales” rather than the total sales. In other words, for each $10K increment in spend, how much did we generate in sales?

The first $10K generated $100K in sales, but that last $10K in spend (bringing the total from $150K to $160K only generated $3K in incremental sales). Plotting this as a function of efficiency and measuring the Cost to Sales (A/S) ratio for each increment yields:

Here, we can see that while the average efficiency increases from 10% to 37% as the spend increases, all of the spend after $80K has come at worse than 50% A/S with the last $40K coming at more than 100% cost to sales ratio. That last slug is tantamount to buying your own merchandise with marketing budget to push the top line!

Perhaps the best way to look at this is as a function of Marketing Income (Net Margin – Ad Cost).

The top line shows total Marketing Income, which is maximized when the Advertising Spend is $60K. If PPC Advertising is to be a cash generator, this is the point where it makes sense to stop. However, there are many other goals to be addressed, and as with catalog circulation, one must be careful to avoid the death-spiral of collapsing marketing budgets.

Whether to view the program in aggregate or by increments is an important consideration, and the right answer depends not only on your firm’s tolerances, but on the shape of this curve. How smoothly does the efficiency degrade? For some of our clients we’ve found the efficiency curve to increase steadily to a point then shoot upwards. The shape of the curve depends on your vertical, the competitive landscape at the time, and other factors.

Determining the shape of the curve is not trivial. Experimenting with different efficiency targets to assess the ROI of the last increment and the next increment is the best approach. If you’re currently aiming at 30%, try 25%, and 35%. Recognize that the lag between clicks and orders can make any pull back in bidding look profitable, and any increase look inefficient; you’ll need to study the effect of the change on “same session” sales, or let the test periods run long enough to wash out the latency. Remember also that the tracked value is not the whole picture. If search is responsible for a big chunk of your company’s web sales keep an eye on overall ratio of marketing expense to sales to make sure any pull back isn’t costing you more top line than you think.

As we study our businesses to try to wring the last inefficiencies out don’t forget to look for efficiencies in places that already appear efficient on the surface. How much can you afford to spend on marketing? This simple little question hides some vexing issues that are worth exploring during rocky economic times.

If the candidate senses online is an afterthought [to the hiring company], then they are not going to work there. It’s essential the company sees ecommerce as a pie-enlarging value proposition, not just a pie-rearranging proposition. Because at the end of the day, “A” players want to go where they are going to matter.
— Harry Joiner

Harry Joiner runs a specialized recruiting firm which focuses on filling online marketing executive slots.

In this podcast, Harry shares his insights on hiring top-notch online talent, as well as how he uses online marketing techniques himself to grow his business.

Listen to podcast: http://www.rimmkaufman.com/content/Harry_Joiner_Interview.mp3

Alan Rimm-Kaufman: I’m honored to speaking with Harry Joiner of Marketing Headhunter.com. Can you tell me what you do, Harry?

Harry: Sure. I’m an e-commerce recruiter specializing in multi channel ecommerce and I have a blog at www.ecommercerecruiter.com and a job board at www.onlineretailjobs.com.

Alan: So you help e-commerce firms place senior executives, junior executives?

Harry: I do indeed. I handle VP level searches and director/manager level searches for a variety of reasons. But to use a baseball analogy, it’s kind of like the manager and director level searches are the singles and the doubles. And three or four times a year, there’s an opportunity to hit home runs there with VP level searches, so it’s a mixed bag.

Alan: I was reading some of your stuff online, and in 1997, you were trading frozen food. How did you move from trading in beef to helping people find jobs?

Harry: I am a glutton for punishment. I worked for my dad’s company. My dad owns a commodity trading company called AJC International in Atlanta, Georgia. And it’s not a small business. They’ve got half a dozen foreign offices and this year they’ll do $800 million in sales. It’s the tenth largest privately held company in the state of Georgia.

So after I graduated from business school, I went to work for my dad’s company for about seven years, and wound up working for their domestic distribution subsidiary in Chattanooga, Tennessee. While I was working up there, I had an opportunity to go into business as a marketing consultant, which appealed to me greatly.

Long story short, while I was engaged on a marketing consulting assignment for a local, interim CFO company that wanted to get into the staffing business, I discovered the recruiting and staffing business. I made them a bunch of money and had a moment of clarity about what I should be doing, so I just decided that I liked recruiting and the money was good and I would just stay doing it.

Alan: That’s interesting. You bring up your background in marketing. One of the things that I think is so cool about your recruiting practice is how heavily you use web marketing yourself. So you’re trying fill positions in web marketing, and you yourself are doing a tremendous amount of web marketing. Can you tell us how you use blogging and RSS and email, the social networks and so forth to grow your own practice?

Harry: Yes. That to me is actually like the luckiest break that I ever got, I think, in my entire career. The first search that I got when I went into business as a recruiter was for director of online retail for a company called Benchmark Brands in Atlanta.

Alan: Sure.

Harry: They run a website called Footsmart. It’s an Internet Retailer top 100 company, I think. So, I started calling around to Shop.org and DMA communities and networking with people. I knew how to speak the language of direct to consumer marketing and I think that was a little bit refreshing to them. We just started chatting about what do you do and how do you do it and do you postcard market, what’s the role of organic and paid search in the growth of your online business and all of these different things.

I just started cherry picking ideas that I thought were applicable for a recruiting business and bolting those tactics on to my own little marketing plan. For example, I’ve got a really good friend named So Young Park, who’s the Director of Online Marketing and CRM for Musician’s Friend up in Medford, Oregon.

My blog used to be called Proven Ways to Get New Customers. It was really essentially a throwback to my days as a marketing consultant. It was like a small business marketing blog. The content was good, but it wasn’t really germane to online retail. One day I was chatting with So Young and I said, “I’d really like to improve the traffic on my blog, you know. Do you have any ways that I could do that?” And she said, “Well, you could always change the name.” And I said, “To what?” And she said, “Well, what do you do?”

I said, “Well, I’m a marketing headhunter.” And she said, “Well, why don’t you just call it Marketing Headhunter?” And I said, “Well, that’s not really very exciting to me.” And she said, “Well, here’s the thing.” She said, “If you call your blog whatever it is you do and people back link to you as that thing, then when other people who need your services Google marketing headhunter and there are a bunch of sites on the internet that back link to you as that, then you become the nexus of all things marketing headhunter on the internet. Does that make sense?”

Alan: It does. So Young is a smart woman.

Harry: She is unbelievable. She said, do yourself a favor, right now, type marketing headhunter into a browser bar. And I did and I went to a website called Buy Domains.com and it was available. It was not cheap, but it was available. And she said, buy it. I said, it looks like it costs a lot of money. And she said, well, how much money do you make per search? And I said, 20% of somebody’s annual salary. And she said, the value that a domain like that will create for you over time, you know, what you would pay for it today is lost in the rounding of that number. So she said, just as a customer acquisition thing and as a branding thing, it will credibleize you in ways that you can’t possibly imagine. She said, you have got to go for it.

And I did and it worked like a charm. I talked to hundreds of really smart people, but based on that one little thing, I was able to take that concept and I bought Management Recruiter.com. I bought SEM Recruiter.com. I bought Search Engine Experts.com. I own Ecommerce Consulting.com.

I have got about 650 domains in my GoDaddy account and I get an extraordinary amount of traffic just as a result of the blogs that I have that are hosted on top of those keyword rich domains. So it works like a charm.

Alan: You mentioned domains, not to be confused with domaining, because you’re not trying to sell advertising, and so you’re actually using them to generate traffic for yourself, correct?

Harry: Yes. Some of the domains that I’ve had, worked better than others. The national domains that I’ve had worked great. For example, if you use the Aaron Wall’s SEO toolbar for Firefox, which is a lethal weapon for any of your listeners who may use that. It will tell you, I guess in connection with Google AdWords, what the keyword count is or what the search count is on a per diem basis.

So, for example, Management Recruiter, I think gets between 50 and 80 inquiries a day on Google, right? And so my blog, Management Recruiter.com is currently ranked second in the organics because of all the people that back link to it. So I mean the national domains, the ones that aren’t localized, like I own Executive Search Atlanta.com. That doesn’t work very well.

I own Executive Search Chicago, Executive Search New York, Executive Search, you know, a bunch of different cities. Those don’t work very well because of the way Google is presenting local search results. But the national ones, the way Google presents those results, the strategy works like a charm, which is lucky for me.

Alan: Can you share a little bit more about your blogging strategy?

Harry: Well, you know, here is the thing. Blogging is a means to an end. It’s not an end unto itself. So for me, blogging is not like a vanity thing. I don’t do it to express myself. I do it to get traction in search engines. And the thing of it is, when I blog at Marketing Headhunter.com. I have an editorial platform for that. I have a list, at least in my head, of things that I will blog about and things that I won’t blog about.

I won’t blog about my cat. I won’t blog about the weather, all those college football scores. But I will blog about ecommerce, about marketing, digital media, careers, and the slings and arrows of growing and developing a career in ecommerce. All that stuff I will write about.

According to, I think, Quadcast or Compete.com, 90% of my traffic right now is coming from search engines. So it’s what Quadcast calls passersby. So the trick with me is I don’t post that often, but what I do post is keyword rich, number one. I have what I hope is a teachable point of view on marketing and ecommerce and careers in those areas, and I produce stuff that people are gonna back link to. And because of that, I get a lot of traction in search engines.

Alan: Moving off the marketing and over to the recruiting, what are the positions, the level, the titles, the skillsets? What’s in the most demand today that you see?

Harry Joiner: I would say probably directors and managers, and the reason I would say that is this; It occurred to me about a year ago that there are 500 companies in the internet retailer top 500, right?

Alan: So 500 VP’s of ecommerce.

Harry: Yes. Some of those brands are so small that they don’t have a VP person there that’s a director, but for all intents and purposes, let’s just call it 500 VP’s of online retail that matter in the United States.

Alan: Sure.

Harry: And let’s say, I’m going to use round numbers that the average tenure as a VP of ecommerce is somewhere between two and three years, right? So you divide 500 by 2.5, and what you see there is that every year a certain number of chairs become available.

Alan: Sure.

Harry: And that’s not really enough to sustain the executive search activity for my industry, right? I’m just one recruiter out of hundreds out there that are trying to weasel into this space.

Alan: Yes.

Harry: So what it amounts to is that I probably get ten VP level searches a year, let’s be conservative, between eight and ten VP searches a year. Of those eight, I’ll probably close four. To pay the rest of the bills, I’ve gotta do manager and director level searches, and there’s a lot of satisfaction in those for me. And there’s a lot of demand in there for those as well.

Alan: What are the tips that you give to companies looking to hire ecommerce talent?

Harry: Well, I would say the first thing is understand that the best candidates are very business oriented. And they want to see the online channel as a means to an end, not an end unto itself, right? So the end that I’m talking about is greater customer intimacy.

So if the candidate gets a sense that the online channel is just an afterthought then they are not going to work there. Because at the end of the day “A” players want to go where they are going to matter.

So it’s essential that the online channel really matter to the company and that they embrace it, that internally everybody is onboard with online and that they completely embrace it and want to see it succeed; and sees ecommerce as potentially a pie enlarging value proposition for the company, not just a pie rearranging composition for the company. Does that make sense?

Alan: It does. It’s interesting to hear you say lead off with meaning and strategic importance rather than cash and personal advancement. I am assuming the comp and all that needs to be in line, but I find it very, very interesting that the first thing you cite is importance to the organization.

Harry: Well, the model that I use with every candidate is; think of your career in terms of the three F’s? Fun, future, and finance. Fun is a completely arbitrary and subjective thing. The financial piece is the only part of this that we can actually quantify, so now we got to really concentrate on the future orientation or the future attractiveness and relevance of the role.

And I encourage every candidate that I work with to really get their arms around that and understand whether or not the client that they are interviewing with is sincerely interested in being an online retailer or developing greater customer intimacy using the online channel to support its other channels and also as a standalone or whether or not they’re just talking about it. There’s a very high ‘full of crap’ factor among companies that are streaming into this space.

Alan: Great perspective. I’m sure you’ve seen a lot of companies intend to hire great people, but botch it. Besides what you just shared with us about the sincerity of their commitment to the channel, what should companies be certain not to do to be sure they don’t drive away good folks?

Harry: If I could give one solid tip is have a hiring process and keep the process moving. The analogies that I used is at the end of the day I’m an elephant hunter, right? And I know where the elephants hang out, I know the elephants, I love the elephants. The elephants are awesome. And elephants like to be shot dead or left alone.

Alan: And the elephant’s the candidate or the company?

Harry: Yes, the elephant is the candidate. And they like to be shot dead and bagged or left alone, right?

Alan: Got it, yes.

Harry: And what they would not abide, Alan, is 120 day hiring process that’s like a big budget movie with a plot that goes nowhere. They don’t have the time for it. It’s frustrating too because the other thing you got to consider is that every single executive search is a zero sum game.

So if I run an executive search for William Sonoma. William Sonoma is a big client of mine and I’ve helped them find a VP of ecommerce last year and have done some director level searches successfully for them in the interim.

It’s kind of like they’ve really got to have their act together and they have got to help the candidates maintain their dignity in the process because there’s only one VP role that they’re hiring for. And so let’s say I source four or five really great candidates for them. Well, they are only going to hire one and that means that everybody else goes home with a t-shirt.

Well, that’s a problem in my business because if the people go home with a t-shirt and a bad taste in their mouth, then they’re not going to like William Sonoma and they’re probably not going to like me. So it’s absolutely critical that I help people maintain their self-esteem and treat everybody with a tremendous amount of dignity because everybody’s got a lot to offer. Everybody could conceivably solve William Sonoma’s online problems in a variety of different ways.

It’s just a question of which candidate has the relevant skill set and the best chemistry and who can contribute something lasting and meaningful to William Sonoma’s existing management mix. And the candidates that can not quite do that this year need to be treated with dignity so that they can respectfully consider the company for future opportunities.

Alan: Good stuff. If a company can not make a hiring decision with internet speed, they may not be moving their business on the line, making online decisions with internet speed as well.

Harry: Yeah, that’s my opinion.

Alan: You see a lot of online retailing. You have a very interesting perspective having placed senior executives into some of the major firms in this space. And I think a lot of us would concur the economy is tough and might even be worsening before it gets better.

If you were asked to give your opinions to leaders of ecommerce companies, what are your suggestions for the rest of the year with the economic storm clouds brewing?

Harry: Well, I would say take a good hard look at your business and try and figure out at a high level, right, back of the envelope type stuff, whether or not your business is going to survive predicated on option A, cross-selling and upselling your current customers, or option B, acquiring new customers, right? So figure out, you know, it’s kind of a Sophie’s choice kind of deal there.

Pick one of those things to be awesome at and then try and staff around that and try and motivate and measure around those things because, you know, for instance, I prefer trying to figure out frankly how to cross-sell and upsell current customers just because customer acquisition in this space is getting to be all about search engines.

And I talk to a number of different VP’s of ecommerce and they all kind of say that Google is a really cruel mistress. You can’t control it. All you can do is just try and deal with it. And so my take on this is pick one of those strategies and try and bear down as hard as you can on that artifact and just be great at it.

Alan: Great stuff. Thank you so much for your time, Harry. If folks want to find you online, what’s the best way to reach you?

Harry: Sure. I’m on the internet at www.ecommercerecruiter, all one word, .com, and I also have a job board. It’s www.onlineretailjobs.com.

Listen to podcast: http://www.rimmkaufman.com/content/Harry_Joiner_Interview.mp3

Put another way, Google continues to control over five times the paid search market share of Yahoo.

Remarkable how stable these aggregate percentages are, despite continuous change in underlying data as our agency launches new clients, clients shift strategy, summer moves toward fall, etc. A Law of Large Numbers effect, clearly.

For full details, see June 2008 Google, Yahoo, Microsoft Paid Search Market Share.

Joel had a lousy experience at the Starbucks on 58th Street and 8th in NYC and he wrote a column about it for Inc. magazine.

Joel’s gripe was with an angry headset-wearing employee, a Starbucks “order expediter”. From research on starbucksgossip.typepad.com, Joel discovered that

Expediters are not really there to see to it that a customer’s order is filled more quickly, they believe. Rather, expediters exist solely to prevent people in line from giving up and wandering off, maybe to go to the Dunkin’ Donuts around the corner. Once a customer places an order, the logic goes, he or she feels an ethical obligation to wait for it to be filled, no matter how long the process takes. Expediters are there to lock in that order as soon as possible.

Joel continues (emphasis and eliding mine)

All of this fancy optimization stuff is called Operations Research. […]

If you’re planning to expand your business to a certain scale, you must first establish procedures and build systems to get predictable outcomes […] It’s a real academic field of study, and it’s really hard and really important. You need to hire pretty smart people to do studies and experiments and collect the statistics and then figure out what it all means. […]

Starbucks is great at operations research. […]

But as it has grown, Starbucks seems to have lost its knack for figuring out whether policies dreamed up at HQ are really going to work in the field.

Systems need to be flexible, and [managers] need to be wary of procedures that, applied blindly, can cross the line into something that looks more like antagonism […]

We’ll get to the PPC bidding angle soon, but first some background on Operations Research, aka “OR”. I earned a PhD in OR at MIT, and so feel obligated to wade in.

OR is a quirky discipline. It was born in Britain during WWII to solve military logistics problems. OR is an odd brew of optimization techniques, statistics, probability, and mathematical modeling.

To its credit, OR helped the Allies win the war by providing efficient plans for shuttling men and materiel across the Atlantic. OR helps cities place fire and police stations in smart locations. OR helps manufacturers run factories more efficiently. And OR helps UPS get packages delivered on time. You can read more OR success stories here and here.

To its discredit, OR is why everyone on your last flight paid a different price, why Long-Term Capital Management nearly blew up the US financial markets in 1999, and why Joel had a bad experience at Starbucks in Manhattan.

You see, optimization algorithms love going to extremes.

The machines think, “if more is better, than most is best.”

But in the real world, extremism often isn’t optimal.

Take an agricultural production planning model. If, say, corn turns out to marginally more profitable than soybeans, the computer will suggest planting every single darned acre in corn, because that solution ekes out a bit more profit.

A smart farmer will hedge her bets and back off from the extreme solution a bit, because the machine’s recommendation is too brittle. She’ll plant mostly corn, but she’ll also put in a few acres of soy and even some wheat, just in case, computer be darned. Smart humans see the larger picture.

You can steer optimization algorithms away from extreme points by penalizing extremities in the objective function or by excluding them from the feasible region. But that revised problem will have its own extremes, and most algorithms will march over to the best corner or the top of the highest peak and happily camp there.

When LTCM imploded, they had thousands of trades on their books, but all were highly correlated — the machines led the traders to place effectively the same bet over and over again.

Extremism. Brittleness. Inflexibility. These are the Achilles’ heel of mathematical optimization.

Optimization algorithms are fantastic tenchologies — don’t get me wrong. Optimization can perform amazing feats. The complexity of modern life requires optimization in many areas. But you can’t just hand the keys over to the machines and go home.

OK, back to pay-per-click bidding.

At RKG, we use a portfolio optimization bidding algorithm to bid millions of ads for our clients, and do so to maximize client profitability. We need machines and we need algorithms and we need APIs, because at scale the PPC bidding problem is far too huge and far too hard to attempt manually.

By default, our system applies two rules when bidding client ads:

1. ECON RULE: Bid ads to their economic efficiency target. Optimize bids based on resulting sales and the client’s economic objectives.
2. SANITY RULE: Keep bids within sane levels.

The ECON rules are the heart of RKG’s bidding system. They are our company’s “secret sauce”, and are far more sophisticated than the short description above suggests. Our clients can instruct us to bid to their choices of economic targets, be those ad-to-sales ratios, return-on-ad-spends, estimated margins, actual margins, net actual margins, what have you.

The real magic of our system is how we handle the many low-traffic ads which, considered alone, have insufficient data to determine good bids. That’s the portfolio optimization piece. Our algorithms use smart clustering and aggregation to bid wisely. Our algorithm is backed by significant math and stats, many many many lines of code, ongoing testing, and years of experience. We’re continually working on improving it, both internally and via formal collaborations with stats profs at Santa Clara, Rice, and Rochester universities.

The SANITY rules are just governors. They take the form, “Never bid more than ‘X’ or less than ‘Y’ per click, regardless of economics”. These overrides keep bids sane. Suppose a particularly lucky ad experienced, over some time frame, two clicks and generated one $2000 sale. Suppose that client instructed us to spend 25% of tracked revenue on advertising. With sales-per-click at one thousand bucks ($2000 AOV x 1 order / 2 clicks), the client’s 4-to-1 sales-to-advertising ratio target would suggest we could bid up to $250 per click.

Sweeping variability and time effects under the rug, the raw economics suggest we could bid up to $250. But we sure as heck never would bid that high — for most retailers going above a few bucks CPC just isn’t prudent.

But these two types of rules alone aren’t enough. Our system provides a salad bar of additional rule types we can use if needed to better serve our clients.

Retail is fundamentally a human experience. Retail is about real people trading money and goods between themselves. And like all human endeavors, retail (like online advertising as a whole) is messy. By that I mean retailing is full of special cases and exceptions.

A retailer is ill-served by an inflexible or brittle bidding system, one that seizes the keys and sends the merchants home. A strong PPC bid platform rests on solid economic foundations, but also accommodates the messy realities of real retail.

What do I mean by messy realities?

• “Ski season starts soon. Last year our telemark gear sold like gangbusters, but recall we had a killer sale on that whole category in ‘07, so this year those terms will likely perform differently.”
• “The CEO wants our ad to appear on page one on Google for the term ‘digital camera’, always, regardless of it’s performance.”
• “Push our home and garden products harder this week to support a national store advertising effort, regardless of how they’re selling on the site.”
• “We want to apply different ROAS targets to different parts of our advertising campaigns, reflecting different margin percentages on different product lines.”
• “Make sure we don’t advertise products in states we can’t sell them, like lead solder into California.”

In addition our basic economic-based bidding, our bid platform allows our client service analysts to layer on additional rules to modify or override certain bids on certain ads which meet certain conditions during certain time periods so as to meet client objectives. Most bids don’t require tinkering. But, when they do, we’ve built tremendous flexibility into our bidding system to allow it.

(An aside: the term “rules-based bidding” has a negative connotation in paid search, evoking the “keep me in position five regardless” approach popular with some firms in recent years. We at RKG typically avoid the word “rules” when describing our technology in our marketing pamphlets for this reason.)

Some bid platforms treat PPC bidding as a black box, “set-and-forget” math optimization problem. We’d suggest online advertisers are better served by more flexible approaches.

We believe the best bidding approach is a hybrid one, smart machines teamed with smart people.

Computers handle what computers do best: large-scale stats, brute-force arithmetic, and executing strategy.

People handle what people do best: special cases, overrides, sanity checks, and developing the strategy.

As Joel experienced in the 58th Street Starbucks, going to extremes can lead to suboptimal outcomes.

On a related theme, I’ve been toying with the idea of developing a new email client aimed at enhancing corporate productivity.

The entry level “bronze” level of my software would be your basic MS Outlook clone.

Corporations seeking increased productivity could step up to the “steel” level software , which would remove “BCC” functionality, mass distribution lists, and email themes.

For a slightly higher price, the “silver” version would in addition lose the ability to send HTML, to include attachments over 1Mb, and to “CC” anyone in the org chart higher than the recipient or yourself.

The “gold” level software would drop CC entirely, restrict the “To” field to at most three recipients, and automatically delete inbound or outbound email matching rumors on snopes.com.

The top-tier “platinum” version of the software would impose a quota on the maximum number of emails each user could send each week, would automatically delay angry outbound emails by 24 hours, and (here’s the killer feature) would allow users to check email at most thrice daily.

Verily, such software could cause corporate productivity to soar.

The HR person asked me this question, which I’d never heard and thought was great:

If you were to put the candidate on a two-person team, what strengths would you want the other team member to have to best complement the candidate?

Asking about what would complement someone best — what a super-nice and effective way to get at someone’s less strong areas.

Putting it in that positive way — rather than the conventional “Can you describe the candidate’s weaknesses?” — got me to think and to speak more more freely.

Polite. Smart. Effective.