There are lots of ways to manage a PPC campaign. Recently, I’ve heard a lot about different campaign management strategies. One management technique is “Portfolio Campaign Management.” It’s a good time to cover portfolio-style campaign management, particularly given my recent column that compares the PPC auction marketplaces to the stock market; and another that highlights the best strategy for determining when to drop a keyword from your portfolio.
What’s portfolio management? In stock markets, a portfolio diversifies holdings to reduce both volatility of its value and investor risk. Some individual stocks are stable and somewhat predictable, others are very volatile and swing wildly, based on current or predicted future financial results of a particular company.
The idea of a stock portfolio is to smooth the rough ride while maintaining good returns. The more stocks in a portfolio, the more likely it will behave like the overall market (and hopefully beat it), but at lower risk. Obviously, if you knew with certainty which one stock would be a stellar performer, you’d buy only that stock.
For keyword campaigns, the primary goal is not to lower risk, but to maximize opportunity. Variables that impact performance of a keyword campaign are visible historically and in real-time; there are no Enrons, Worldcoms or ImClones here. The goal of any keyword campaign is to maximize the results across keywords and engines, subject to specific ROI objectives. You have a considerable advantage over hedge fund managers and stock pickers. By looking at the right data and keeping your pulse on a paid search campaign’s performance, you can predict to a fairly high degree of certainly where your ROI, volume and profit will be on a portfolio of keywords.
The larger the list of keywords in a campaign, the more likely you’ll decide to use some level of campaign automation to lower the risks of having a keyword in an unprofitable or non-optimal position. For many marketers, a broad keyword list running across many engines simultaneously can and will add volume and ROI to a campaign. Will additional keywords add stability and reduce volatility? That depends on your industry vertical, business, and your competition’s actions. Some industry verticals have power keywords that both drive volume and can be very volatile in pricing. Sometimes, the bid landscape for these power keywords will shift several times an hour, particularly in Overture, where there’s a direct auction. Google has less volatility due to their CPC/CTR AdWords ranking system.
To manage a PPC campaign against any ROI-based objective, the objective must be quantitatively defined. Your ROI objective may be a simple cost-per-order (CPO) or cost-per -action/lead (CPA). The metric may be more sophisticated, such as a return on ad spends (ROAS) or ROI, where the “return” is either revenue, contribution margin or lifetime value.
Even brand marketers often use a combination of branding metrics such my BEI score, awareness scores or recall scores to add quantitative structure to a campaign. No matter what ROI metric is used, management likes to see simplified reports from the internal team or the ad agency. These simplified reports indicate how the campaign is doing in comparison to ROI objectives set forth by management. Reports presented to management reflect campaign averages. Most portfolio campaign management techniques also manage averages, but in different ways. To use portfolio management techniques for maximum corporate benefit, you match the technique to your business.
Improperly executed, a portfolio-based campaign management strategy can cause damage. Even worse, the marketing team may not know the damage occurred if portfolio averages look “OK.” Properly executed, strategic portfolio campaign management can provide a search engine marketer with the flexibility to build volume through intelligent use of power keywords and an ROI-volume profit trade-off analysis. Unfortunately, many marketing teams, providers and agencies don’t know the difference between a well-executed portfolio and a horrific one.
The primary objective of a portfolio-based search engine marketing (SEM) campaign is to maximize the volume (leads, revenue, or orders) given a specific return on investment (ROI) objective. Let’s assume you have one ROI objective for your entire campaign (more about this later), as portfolio campaigns require you set an ROI objective for the campaign, such as cost per action (CPA), cost per order (CPO), or return on advertising spend (ROAS). What ROI metric should you pick for a portfolio strategy?
Let’s review some possible ROI metrics in the context of portfolio campaign management. Fail to understand the difference between your average ROI, breakeven ROI (including negative ROI), and optimal ROI metrics and your portfolio campaign might not perform at peak profitability.
My business partner, David Pasternack, prefers a simple analogy. He likens investing in marketing (SEM or otherwise) to buying money. Each dollar spent should have an appropriate return. Knowledge, measurement, metrics, strategies, and techniques can combine to maximize profit when you invest and manage the right way.
Average ROI
An average ROI metric takes all the keywords and elements of your campaign — good, bad, and ugly — and mixes them into one reported number. As with a hedge fund, you see the results but have little idea how those results were achieved.
Any portfolio average will include high ROI golden nuggets and poorly performing “dogs.” Did the portfolio manager put the dogs in on purpose to increase volume? I hope not. Average metrics can hide the real deal.
Breakeven ROI
At breakeven ROI, campaign (or campaign segment) profit is exactly breakeven. Imagine buying $10 bills for $10 each (eliminating transaction cost of your time). Breakeven isn’t exciting. Any campaign segment performing worse than your breakeven ROI actually loses money (negative ROI). In portfolio management, this can (and does) happen. For every dollar you spend on the negative ROI campaign segment, your marginal (incremental) return on that dollar is negative. Even if you get orders, registrations, or revenue, the incremental revenue is unprofitable.
Imagine buying $10 bills for $11. Are you getting revenue? Yes, but cost exceeds profit on every transaction. You wouldn’t want a portfolio in which, when it could be prevented, some keywords had negative ROI. Negative ROI means lost profit and a failure to use marketing dollars where they get positive ROI (opportunity cost).
Optimal ROI
Optimal ROI occurs when profit is maximized. This isn’t the same as the highest ROI. It isn’t when volume of orders, registrations, or other actions are maximized. Optimal ROI is the profit-maximizing point at which any attempt to gain more volume through bid increases results in a lower total profit.
Let’s return to the $10 bill example. For a specific auction keyword, you can buy either 1,000 $10 bills for $8 each (position five) or bid more (get a higher position), buying 5,000 $10 bills for $9 each. Profit per transaction is lower at the higher cost and position, but volume grew faster than ROI dropped, so extra volume was the best strategy.
If raising bids again results in the $10 bill costing $9.50 each and volume only went up an extra 500, it’s a bad move. Optimal ROI is the ROI setting for a keyword and campaign that results in the profit maximizing balance of volume and ROI.
You never want any listing at any time to cross the optimal ROI point, even if it generates additional volume. The right position for profit maximization and optimal ROI isn’t static. It can change constantly, based on the competitive landscape, external factors, time of day, and day of week.
Two Common Failures
Failure to achieve optimal profit levels is portfolio-style campaign management’s greatest risk. Unfortunately, too many agencies, internal campaign managers, even search engine reps don’t understand the best portfolio has each keyword listing at its optimal ROI all the time. Campaign managers unaware of best practices often allow some keywords to cross into negative profit. Ouch! To add insult to injury, performance reports hide the negative profit in a successful average ROI metric. If you can’t see the individual results of a campaign at the most granular level, you’ll never know the real deal.
Another common failure occurs when you use the same short-term ROI metric (CPO, CPA, or ROAS) for the entire campaign to simplify it. Don’t oversimplify your business.
Instead, look at the reality of your business. Customers originating from different segments, or “clusters,” of your campaign likely deliver different long-term (or short-term) profit levels. With a loan marketer, some keywords result in approved applications and some keywords drive higher-dollar-value applications (more profit). For a travel marketer, some segments deliver loyal customers who rack up thousands in bookings. Others attract deal shoppers who buy low-profit packages and never return.
If your business has great, good, and bad customers or leads, your true breakeven ROI objective (using short-term data only) should be set by campaign clusters. Using one conversion or ROI goal wastes money and misses the best customers, resulting in a non-optimal campaign. You’d be willing to spend more to get those customers, and chances are you have data to help estimate from which keyword types those customers originated.
Conclusion
Unlike stock markets, in keyword search marketing you can predict, to a great extent, the expected return from a particular price, position, keyword, engine, daypart, creative, and landing page combination. Most pertinent variables are very measurable, and, therefore, the data is actionable through hands-on management by a human or system. To tap search distribution’s full potential, run a broad campaign, which may require automation or constant manual attention.
To manage your campaign this way, analyze your business objectives and consider segmenting your business based on customer value. Set up listing clusters with their own optimal ROI goals. Then use all the data at your disposal to run a truly optimal, profit-maximizing portfolio campaign that doesn’t hide the truth in averages.
Make informed decisions about how to adjust the ROI objectives by cluster. You’ll feel great when you send the CEO a report showing SEM spending, revenue totals, profit, and average ROI. The CEO might not ask for a listing-by-listing accounting of profitability, but you’ll know your campaign is humming along optimally.
By Kevin Lee