How much should you spend on AdWords?

In a recession, as it gets harder to generate new sales, there is naturally pressure to cut advertising.  Yet it is vital to maximise sales.  How do you square the circle?

The minimum budget must be the spend that generates immediate profitable sales.  For most businesses, that can be easy to measure even though hard to achieve.  Cutting the core budget will result in an immediate fall in profitability. Online companies generating leads for further sales follow-up will have a delayed reaction that may be harder to forecast as the lead times get longer.

Unfortunately as markets get tighter, the proportion of companies able to make immediate profit from their advertising must inevitably fall.  Then the problem of setting the online advertising budget becomes similar to that of deciding the offline spend.

The first factor to consider is the overall visibility of your website.  If you come top of the natural listings for your major keywords, cutting your online advertising will have a much lesser effect than if your adverts are the only way you appear on the first page of results.  A switch of resources from advertising to search engine optimisation will help in the longer term but you cannot expect immediate results.  So those who have already marketed their site effectively will gain over the short term marketers.

Other businesses that will gain in relative strength are those with a high proportion of repeat sales.  They know already where some of their most profitable business will be found and can choose to switch from advertising to email or other channels of customer contact. It is always cheaper to market to an existing customer than to someone who does not already know you.

How unique is your supposed 'unique selling proposition'?  Businesses that customers see as offering the same service as the competition will be under pressure to reduce prices.  So even where you would love to sell off excess stock, it may be more profitable to concentrate on promoting your core products on which you can build a long term profitable image.

Companies with relatively few orders but high value sales need to try and maintain their visibility even though new customers seem to have vanished.  So long as they maintain a long term profitable service for themselves and the customer, they must assume that those potential customers are still researching their options even when not ready to commit.  The higher value the sale, the longer is the normal sales cycle and the more people are involved in the decision so reducing promotion may inhibit the chance of sales in the eventual upturn.

Once again in the field of online marketing, the answer is "focus".  You can cut back on the spend on secondary key words. You can cut back on secondary product lines.  But you must maximise customer service (to be judged by the customer, not by you) and you must continue to promote your key long term product.

Talk to you next month,

Stephen Orr