Well, we have been pretty busy with monthly reports, and some exciting Google Analytics setup stuff.  Of particular note, MetaGeek recently migrated their website to a new platform, and earlier today they decided that the transition warranted an upgrade to the new ga.js, rather than the old urchin.js.  We are pretty excited because we have only “played” with it so far.  Luckily, the guys and gals at MetaGeek are on the bleeding edge of technology and they aren’t afraid of the word beta.

So, enough of the fun stuff….  We are in a transitionary state now (new name, new partners, new products, and other new stuff), and the change just can’t come fast enough.  So, we have been grappling with one of the hardest things in our industry (IMHO) — Pricing.

Pricing several of the services we offer is akin to hitting a moving target, and what works this time may not be applicable next time, but in fairness to our clients (and potential clients) we are working on a solid pricing strategy.  Today’s discussion was particularly about Paid Search Marketing.  Check out our paid search marketing page to see what we came up with after years of practice and and weeks of discussion.

There are several models out there, and we picked the one that is most inline with our philosophy that data-driven decisions are the best way to make good decisions.  So, here is a little about the major pay-per-click models out there, pros and cons, and why we chose the one we did.

Percentage of Ad Spend

This model is fairly self explanatory — if you spend $1000/month with Yahoo and your PPC professional charges 15%, you are looking at $150 for the service.  This is one of the more prevalent models out there, probably because it isn’t real complicated.  I see two major problems:  (1) It doesn’t encourage efficiency, and (2) the punishment doesn’t fit the crime — in other words, if your provider improves your account performance (decrease cost or increase revenue) they get penalized with lower pay.  Now, that being said, there are a lot of really great PPC professionals that use this model and do fantastic things for their clients, but it doesn’t match our mantra of “marketing efficiency.”

Pay-More-Per-Click

The premise here is that your paid search provider gets $X for each “click” they provide (so you pay-per-click with the medium and a little more for the provider).  Again a prevalent model in the industry, but, I think, fundamentally flawed.  In a certain sense this isn’t significantly different than the Percentage of Ad Spend because ad spend is calculated by multiplying bid amount by clicks.  However, for a site that gains revenue through traffic (very few qualify) this may be a good model.  Most of the time, however, clicks do not equate to meaningful events on the website — it usually a small percentage of the clicks, depending on how targeting and relevance of the keywords.  Conceptually, the idea is that you are only paying for successes (clicks that lead to your website), but counting clicks ignores bid prices, ad quality and relevance, and overall efficiency.  Let me reiterate that there are great PPC firms that use this model, and I am not suggesting that anyone who does is a crook, I am simply saying that it doesn’t really fit with our over-arching philosophies.

Management Fees

PPC management fees are usually assessed monthly and range from $20/mo to $2000/mo.  The idea here is that your provider focuses on marketing efficiency for a flat fee.  Basically, it is not a pay-for-performance model, which makes it less attractive.  However, it isn’t fraught with the pressure to up ad spend or lead irrelevant traffic to the site because pay is not related to spend or clicks.  We favor this model, but there is a lot of ambiguity and serious question about whether the monthly cost is justifiable.  For example, if the monthly cost is $500, and results are mediocre you may be better off running your own “unprofessional campaign” and accepting that $500 could be wasted on inexperience or inattention.  The key is to seriously evaluate your provider and whether they have an ROI (scarey concept for us :-).

Pay-Per-Keyword, Group, or Campaign

This is our chosen model, not because it is perfect or simple, but because we think it decreases conflicts of interest and encourages market efficiency.  The concept here is to charge per keyword, or ad group, or campaign.  We prefer keyword because it really focuses our attention to the critical factors.  The highest converting keywords are refined and the low converting keywords are dropped.  This pays your provider something for management fees, but you can quickly determine whether keeping keywords makes sense.  Here is an example:  If the cost is $10/month/keyword you will need to regain your ad spend plus $10 for that keyword, or you should drop it.  Of course, that is over simplified, but you get the point.

These are the primary ways I see people charging for paid search (sometimes it is a combination), but if you know of others, please share.  How a company charges probably reflects their culture and philosophy more than it reflects their capacity to execute effective campaigns.  So, in conclusion, happy search marketing and Merry Christmas!  We will keep you posted on our continuing evolution.

This entry was posted on Monday, December 17th, 2007 at 5:55 pm and is filed under Paid Search. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.