Remember the Yellow Pages? It was a phone book in which advertisers paid money for ad space. People who needed something--a plumber, a pizza, a podiatrist--would open the Yellow Pages and search for the category they were interested in. Then they would peruse the listings and call the business that seemed most promising. When we all relied on the Yellow Pages to show us the way to the closest shoe repair shop, nearly every business had a listing or an ad--and consumers "let their fingers do the walking."
Today, of course, lots of us simply do a Google search to find what we need--yet not every business places an ad in this virtual Yellow Pages. So it is time for every business owner to understand the basics, and that's why I've brought in the experts. They're Howie Jacobson and Kristie McDonald, co-authors of Google AdWords for Dummies, and partners at the online marketing firm, Vitruvian. I asked them to give us the inside scoop on today's digital equivalent of the Yellow Pages.
Give us the quick lowdown on what AdWords looks like from the advertiser's point of view.
Advertisers write short ads, 130 characters maximum. They bid on "keywords," or the search terms that their prospects are typing into the Google search box. With every search, Google runs an auction and displays the ads that it predicts will bring in the most revenue. For example: let's say you have a business selling and servicing horse tack: saddles, bridles, reins, etc. You might bid on the following keywords:
Horse tack
Horse bridle
Horse blanket
Horse saddle
When a searcher types one of these search terms, or a close variation (horse blankets, or Western saddle, for example), your ad would appear on the search results page if you were one of the top 11 competitors for that particular auction. (Check out what those results would look like here.)
So does the AdWords "auction" work like a regular auction?
No, it doesn't. Normal auctions simply pay attention to the bids. Google invented a simple-yet-ingenious twist on the auction that catapulted AdWords past its early pay-per-click competitors. Here's the twist: the actual click price is a function of your maximum bid and the quality of your ad. Ads that generate more clicks get a volume discount, so to speak. So if you write ads that generate twice as many clicks than a competitor's ad, you can pay half as much per click and still come out on top of them in the auction.
This twist created a brilliant win-win-win scenario: Google wins because it sells advertising space for top dollar. Since Google only gets paid when someone clicks an ad, it's in its interest to favor the more "click-worthy" ads, not just the ads with the highest keyword bids. The advertiser wins because they don't have to pay for ads that don't work. And the searchers win because they get to see relevant advertising, as decided by them, not Google or the advertiser.
Is AdWords competitive for advertisers?
It most certainly is! Like the Yellow Pages; all your competitors are gathered in one spot, jumping up and down, saying, "Pick me! Pick me!" And since better ads are cheaper, your savvy competitors are constantly testing new ads to find the best ones.
The amount that a business can afford to pay for a click depends on how much that click is worth once the visitor lands on their website. So businesses that focus on improving their website-conversion rate (the percentage of visitors who become leads or customers), profit per sale, and number of repeat sales and referrals, almost always come out victorious in AdWords. And the fact that AdWords is highly competitive is good news; it means that advertisers are making money there. Remember, Google handles close to 4 billion searches per day. You would expect such a large and hungry traffic stream to attract fierce competition.
Let's talk about small business. How can AdWords help a small business?
We recommend AdWords to small businesses for two reasons: traffic, and testing. Many small businesses can use AdWords to generate all the leads and sales they need, at margins they are happy with. And AdWords is the world's easiest testing engine; you can test new ad text and landing pages and let Google tell you which ones work the best. Many start-ups have saved a lot of money by testing their offers and messaging with AdWords before jumping right into production and sales. Other businesses have doubled sales by improving an online sales letter using AdWords traffic.
What's the catch?
Virtually any business can benefit from AdWords testing. Not every business will make money on the AdWords traffic, although you can't know without trying. But there’s a caveat: since AdWords is competitive and fairly complex, you need to be willing to invest time to learn the system. You also need to have enough spare cash to run conclusive tests.
How much cash are we talking?
Since every market has different keywords, and keywords all have different click prices, it's impossible to estimate costs without knowing something about your business. Google provides a free keyword tool that shows you estimated cost per click data for different keywords, as well as the number of searches per month. So, you can use these numbers as a starting point, but you'll need to buy some traffic to get actual cost per click data, as opposed to an estimated average.
And before you start, you should consider that it's useless to spend money on AdWords unless you have enough to first fund an adequate test. The average cost per click for horse blanket is $2.13. Let's say you have a new website devoted to selling your horse blankets, and you want to know how well it does. If you send 10 visitors to that page and none of them buy, should you give up? Of course not; 10 people is too small a sample size to infer any trends. You'd want a couple of hundred visitors, at least. And if you were testing two variations of the page, you'd want to send that many to each page.
So for a typical landing page split test with two variations, you’ll need enough money to buy 500 clicks. If your keyword is horse blanket, that's $1065. If you can't afford to spend that much without expecting the money back in sales, then you shouldn't be running that test.
That's probably a little complicated for some mom-and-pop shops. What about outsourcing the use of AdWords?
AdWords is a complicated beast, as we've said, and it changes all the time. Unless you or a member of your team devotes several hours a week to keeping up with all the new rules, features, and strategies, you're going to get eaten up by the pros.
Outsourcing your AdWords advertising can have three benefits. First, you're probably much better at other aspects of your business than AdWords management. So letting go of the AdWords reins means you now have time to devote to the high-value work only you can do.
Second, the focus and expertise that a skilled AdWords account manager brings can mean the difference between mediocrity and success in this highly competitive medium. If you've got a horse worth racing, why not hire a great jockey?
Third, reputable agencies are assigned AdWords reps, who can be invaluable if an account ever runs into compliance problems (and since Google is notoriously vague on its terms of service and policies, most eventually do).
At first glance, Alex Zhardanvosky and Joe Speiser don’t practice the “stick to your core competencies” mantra they preach. After selling a major share of Azoogle (now part of Epic Media Group), the online advertising business they founded in 2000, they started selling… pet food.
“In 2002 we had $2.1 million in sales at Azoogle,” Alex says. “By 2005 we had grown to $64 million. We sold a chunk of the company and started looking for another business we could start from scratch.”
In spite of the Pets.com debacle—in fact, partly due to the highly public failure of Pets.com—the two launched PetFlow.com, a scheduled online pet food business, in March 2010.
“We love pets, and as pet owners we knew there was no way for a customer to buy pet food online easily,” Alex says. “The industry had been largely devoid of investment after Pets.com failed, and we saw that as a definite opportunity.” After less than four months PetFlow.com took its first orders and has since grown at a 10-15% monthly pace, with November sales reaching nearly $1.5 million.
Alex has started several successful businesses—and has made angel investments in a number of companies founded by previous partners and employees—so I asked him to share a few lessons learned from multiple start-ups. Here’s what he said, in his own words:
Never try to act “big.” Red tape starts playing a big factor when a start-up reaches a certain size. Small companies try to act really big, sometimes just because a few employees came from larger companies and they feel the organization needs to become more “corporate.” For example, frequent meetings aren’t a productive way to spend time. In big corporations you have Monday sales meetings, Wednesday management meetings, Thursday operations meetings… but if you create a naturally open forum, you don’t need all that. We set up open office layouts so we don’t need to discuss things as a team; everyone is already in everyone’s business, so to speak, in a really good way. Joe and I share an office and we almost never close our door.
“New” doesn’t have to mean “complicated.” Most products are wants, not needs. You don’t have to buy an iPod, but if you have a dog you have to feed your dog. We wanted to provide a solution to an ongoing need. The pet category is completely recession-proof and it isn’t based on fads or fashion. Plus it’s non-cyclical: Dogs don’t eat more at Christmas than they do in July, so we don’t have to ramp up for the holiday season. As long as we execute well our customers naturally become long-term customers.
What others do is irrelevant. On the Internet it’s all about deals, but when you create a valuable product and service proposition you don’t have to give it away. We don’t offer sales or discounts. While we provide pet food, we really sell a service and the elimination of a chore. In essence, we sell time—our customers’ time. To feed your pet you have to go to the store, walk down the aisle, stand in line, lug the heavy bag home… and do it over and over. That’s a chore. Customers love us because we eliminate that chore, and brands love us because we don’t discount their products and dilute the value of their brand. Most online retailers focus solely on being the low-cost provider, but providing the best overall value—in cost, convenience, and making life better for your customers—matters a lot more.
Stick to your core competency. We learned this the hard way. When we started our online advertising network we focused on cost-per-action (CPA), performance-based advertising. Then we spent a year trying to start a cost-per-impression (CPM) network and eventually realized our customers didn’t want it. We diverted lots of smart people and spent lots of money on a glittery opportunity that was a complete loss of time and revenue. Now we like to say, “Never bend over a dollar to pick up a quarter.”
Of course you could argue that PetFlow.com wasn’t in our core competency, but while the category itself is different we knew the model inside out. In our online advertising business we worked with Netflix, Blockbuster, Columbia House, and other major subscription-based services. We knew how to land and develop long-term customers. So we stuck to our core competency, at least until we had to…
Take over when you have to. We started out using a third-party logistics (3PL) provider to handle fulfillment. The problem is that once you reach a certain growth rate it’s tough for a 3PL to grow with you. When our 3PL started to struggle—missing ship dates, shipping orders incorrectly, shipping to wrong addresses, etc.—we knew we were in trouble, because from a business owner’s standpoint there are only two things that matter: How many customers you have and how long you keep them. So we stopped advertising in June, leased our own facilities, and jumped headfirst into warehousing and logistics, even though it’s something we knew nothing about. We thought we could use others to handle critical tasks but we were wrong.
As daunting it seemed, we got really smart people to help us. We found the best in breed software, found a staffing agency to help us hire great people, and already we’re more efficient than our 3PL had been.
Our business is highly dependent on scale and growth, and it’s really important that we deliver consistently... so core competency or not, we had to take over.
Delegate—and then delegate some more. Our employees typically don’t need to ask for permission. We give employees a specific task and trust them to make the right decisions; if they don’t, together we’ll figure out what to do better next time—and then everyone will know what to do. Then, after we delegate we...
Don’t micromanage. I ask people to only copy me on emails when they want me to know about something, not because I have to know. When employees feel they have the authority to take action and generate revenue for the company, they’re a lot more productive.
Find what matters and then excel. We don’t try to make PetFlow.com a pet food “discovery” site. And we don’t try to educate our customers about pets or pet foods because they’re already extremely knowledgeable. Our goal is to make it easy for customers to purchase what they already know they want, so we focus our energy on making our shopping cart and checkout system as simple and easy as possible. “More” isn’t always better. Sometimes "more" is just distracting.
Let your customers drive your business. We currently have about 4,500 SKUs and we’re expanding all the time because we let our existing customers tell us what they want. Customers will buy what they ask for, so find ways to ask. When your customers tell you what they want and you give them what they want they’ll stick with you for a long time.
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