A quantitative look at SEO vs. PPC
I’ve been through the ropes when it comes to SEO and PPC advertising (particularly with Google’s Adwords). Clients come to me either looking for SEO or online marketing solutions. Their objective is obviously to increase their sales and they want it to happen yesterday. The first thing I look at is where a site is currently ranked in search results for their targeted keywords before beginning any SEO or PPC campaigns. I like to also take a look at their Google Analytics data to see what’s already working well for them and to get a perspective of the volume of traffic they’re dealing with. Some business have none of these things setup and are simply trying to make a push to increase online revenue. Whatever their motivation the objectives are all the same and the same techniques apply. Except, however, for my recommendation for PPC ads.
Small businesses which don’t get much online traffic are usually looking for a quick fix and instant gratification. I usually take the time to explain the benefit of SEO and link building to these companies but in the end they usually choose PPC advertising. I’m not against PPC ads but I do have a pretty quantitative reason for trying to dissuade some of my clients from pursuing that route. From my experience, PPC ads only work if you have a high return on a product that has a high conversion rate per click. In essence a high ROI. The problem for many small businesses is that they sell low dollar items which themselves produce a small profit margin.
Lets take a small handmade soap manufacturer as a perfect example of a small business looking to expand their sources of revenue by setting up a shopping cart. A company like this might make a dollar on each bar of specialty soap sold. They aren’t likely to have huge resources like a large technology corporation so their budget for the project is relatively small. Lets say less than 5k USD. Part of that covers development costs and the rest ends up in limbo while I exude the benefits of SEO over PPC advertising to the client. From the perspective of a business if someone tells me to spend a few thousand dollars and it’ll pay off in maybe 6 months but they can’t guarantee first page placement my natural business sense tells me to tell this person where to go. My alternative is to pay per click advertising which will result in instant traffic and likely increase my sales immediately. The choice is simple in that regard and its why many small businesses with little understanding of online commerce end up abandoning their get rich quick online schemes.
Lets dig a little deeper into PPC ads. Lets assume a bar of my handmade soap costs me $3 and my typical order contains 3 bars of soap. Lets also assume I make $1.50 off each bar of soap I sell. Those numbers are pretty realistic examples. I now want to start an online marketing campaign and put in 3k USD to PPC ads for a month. That means I need to sell 2000 bars of soap in a month and have about 666 orders with 3 bars each on average. If we stretch those orders out over the entire month then I need to get about 22 online orders a day to simply break even with my PPC advertising campaign. Now lets look at the budget I have allocated for the month, $3,000. That’s about $100 a day. Lets assume that with my amazing skills I’ve managed to optimized my Adwords campaign so well that I’m getting an average CPC at $0.40. That will give me about 250 visits a day just from my Google Adwords campaign. If 22 of those 250 visitors placed orders that would make my conversion rate 8.8%. Depending on the industry that’s a pretty high conversion rate for online sales. Now take a look at what we just went over. This looks at what we need to just break even and we had to make some incredible assumptions like our amazing CPC at $0.40. A average CPC of $0.60 to $1.20 is more realistic for the targeted keywords but we gave ourselves the benefit of the doubt for this example. We still needed a 8.8% conversion rate which isn’t too probable. Its an example where some simple upfront analysis of the numbers will tell you that my $3,000 is better spent doing some SEO and link building so that I can get natural free search traffic that will last longer than a single month.
Lets take an example of a high dollar product, travel. People spend about $1500 on a travel sale and per sale I may make on average 10% or $150. The example above needs to be modified to have an average CPC at $2.00. If I need to make $100 a day in sales it means I need to make just 1 sale a day or 2 every 3 days. If I’m spending $100 a day on ads with an average CPC at $2.00 I’ll get about 50 visitors a day. If I need just 1 sale from those 50 visitors that’s a conversion rate of 2% which is certainly much easier to get than the 8.8% I needed from selling soap. This campaign has a high likelihood of succeeding and will probably be well in the black at the end of the month.
Travel has a high profit margin and requires a low conversion rate which is why PPC campaigns work for it. Soap has low profit margins and requires a high conversion rate to simply break even so a PPC campaign isn’t likely to succeed. My soap business will end up negative at the end of the month and I’ll likely be bitter at the waste of the small investment I made towards PPC ads.
In summary, SEO is the way to go for small businesses selling products with small profit margins. Its a more calculated and well thought out method of generating sales online. The benefits may take time to show but the payoff is that your online business may actually succeed. PPC ads on the other hand will have you bleeding money with little chance of ever turning a profit.