I held a previous role as a project manager for the oldest software SaaS-based ecommerce solution on the market. After months of working as the liaison between my employer and our merchants, I felt it necessary to assume extra responsibilities akin to those of an account manager. Although my primary responsibility was not to manage search engine marketing (SEM) campaigns, I was responsible for generating campaign reports and supplying them to merchants. As the central point of communication, I also frequently addressed inquiries and took it upon myself to leverage those touchpoints to provide input based on my experience in SEM for ecommerce and other types of businesses.
During my time in that role, I delegated most performance questions to the specialists who were competent and responsible for our campaigns. However, throughout my time spent analyzing those campaigns, I observed some noteworthy aspects that stakeholders of SEM projects might find useful.
What is the Relationship between Ad Spend, ROAS and ROI?
I will begin by discussing a significant discovery made through my analysis of the correlation between return on ad spend (ROAS) and return on investment (ROI). My employer had a unique method of calculating ROAS differently than the majority of the digital marketing industry. We subtracted the ad spend from total revenue and then divided it by ad spend to obtain the ROAS of a campaign. Most digital marketing agencies do not subtract ad spend from revenue before dividing the revenue by ad spend.
For example, we would convey an ROAS of 75% that traditional agencies deem as an ROAS of 175%. We would take out the 100% as it indicates the break even point, so the 75% would indicate overage in revenue above their ad spend.
It is worth noting that our company procedure did not initially include calculating the ROI of our campaigns at all. It took several conversations with a few customers about their displeasure with the results of their campaigns for me to look into these metrics more deeply in an effort to save the accounts. In fairness to them, I understood their concerns.
I initially began to look into factors that could influence the campaigns performing at a lower ROAS than some of the other campaigns we managed for other merchants. Sometimes, lack of campaign performance is due to market conditions, product costs, competition, etc. These factors can play a role in the results of a campaign, and it is important to note that the person managing a campaign has no control over these outside influencers. Outside of one campaign, I was unable to determine any examples of these factors across the campaigns in question.
So, I continued to analyze the underperforming campaigns. I held discussions between the specialists and the merchants pointing to the fact that these campaigns were performing at a lower ROAS, because they were newer campaigns. The maturity of a campaign is important to consider when judging a campaign’s performance. SEM requires time to determine the right bid price, add negative keywords, and conduct other configurations for optimal performance.
Our process was typically to start by allowing Google to manage aspects of the campaigns to gather data and gain insights. After acquiring enough data to inform our decisions surrounding campaign optimization, we would then move to manually managing campaigns. Making informed decisions is essential to effective SEM for ecommerce.
Even though there were valid reasons for requesting patience from the merchants, telling them they had to sit tight while they continued to experience losses did not sit right with me. I began to look at the ROI of their campaigns and others that were performing very well. The determination that the same specialists were producing incredible returns on investments for other merchants was a key factor in leading me to dig a little deeper. I also took the notion into account that a decent ROAS for a new campaign should be able to produce a +ROI in theory. I eventually identified that there was a threshold where the ad spend was insufficient to cover both the ad spend and management fees for these accounts.
I will use a hypothetical example to illustrate my point:
Consider a ROAS of 175% using the conventional formula previously mentioned. If the ad spend is $1000, the ROAS would be $1750. That’s great, right? Well, not necessarily. If there is also a management fee of $1000, the total ROI would be -$250. If the ad spend is increased to $4000 and the ROAS remains at 175%, the ROAS would be $7000. With the management fee of $1000 added to the $4000 ad spend ($5000), the ROI would be $2000. Notice I did not assume that a greater ad spend would increase the ROAS%, which is common, but there is no way to project an increase in ROAS%. It seemed fair to make these calculations based on the same level of ROAS performance for the sake of taking a conservative approach that is almost always appreciated by stakeholders.
The same theory applied to real data ultimately led me to the realization that there was a relationship between ad spend and ROI. I began to toy with some campaign data and realized that the issue was not that our campaigns were not performing, but rather that the merchant was not spending enough on their ads for them to be successful!
Many stakeholders, client side and agency side included, overlook this aspect when starting with conservative budgets. This often leads to businesses quickly withdrawing their support without considering that an increased ad spend at the same level of ROAS performance would theoretically result in a higher ROI. The tool I created to demonstrate these projections was instrumental in ultimately saving some clients.
One unique difference between SEM and search engine optimization (SEO) is that the management fee is the only cost involved in SEO. In SEO, there are typically no hard costs other than an occasional purchase of backlinks or guest posts.
When it comes to SEM, the management fee should always be considered. I have worked with agencies that had difficulty explaining how the relationship between ad spend and ROI works. I will make it simple. The greater the ad spend, the less significant the management fee becomes as long as there is a decent ROAS.
What is the Relevance of ROI Attribution to SEM for Ecommerce?
I will use an example of how ROI attribution played a role in securing a client within this same role:
The Director of Marketing for a merchant was initially dissatisfied with our SEM services. Assuming the role of an account manager, I reassured the merchant that our specialist was more than competent and won her trust in continuing with our company. As I continued to analyze their account, I realized they were running campaigns simultaneously with ours. I convinced her to allow us to utilize that budget, increasing the ad spend for our campaigns significantly in month 3.
Our initial reports indicated that they were barely breaking even after month 3. The only reason they were breaking even at that point was primarily due to their increased investment in ad spend. Keeping in mind the talent level and track record of the specialist and their significantly increased budget, I continued to analyze the campaigns to make more determinations.
In those efforts, I realized that our specialist had set up conversion tracking for a multitude of other conversion methods on their website including chat, phone calls and form fills. That led me to ask the client about what type of revenue attribution system they had in place. I wanted to see if Google Ads were driving conversions through other methods of purchasing.
Luckily, she understood the value of ROI attribution and had a system in place that allowed her to determine which sales should be attributed to SEO, Google Ads, or other marketing efforts. What we found through additional reports generated by her ROI attribution system is that our SEM for ecommerce services actually generated a substantial amount of revenue through chat, phone calls, and website form fills.
Ultimately, we realized the ROI of our campaigns was approximately over 200%, indicating strong campaign performance. Had I not thought to look further into their ROI attribution systems, we might have lost that account.
SEM for Ecommerce: When Should You Bid on Branded Keywords?
This same merchant presented another valid objection to our campaigns that is important to share. The merchant wanted to know why we were using branded campaigns, as a lot of people believe that is double advertising. In essence, paying for clicks from people who already know the company or product name. This group of individuals might include repeat customers clicking on the first listing they see on the SERPs.
In defense of our specialist, I explained the importance of bidding on branded campaigns. Google ads appear first when people search for a business. If company A doesn’t bid on their own branded keyword phrases this creates opportunity for Company B to appear on the SERPs where company A does not. This decision potentially leads to lost opportunity for company A in the form of lost existing and new customers. Companies with very healthy budgets will often take advantage of competitors that choose not to bid on branded terms and win business with this method.
Even though I provided the merchant with this explanation, I have always considered bidding on branded terms as a secondary strategy for businesses with conservative budgets. While I silently agreed with the merchant, it was not my position to dispute the specialist over the phone.
Why Is Transparency Important in Business Marketing?
If our department had not been outsourced, the specialist and I would have discussed dropping branded campaigns for more product-focused ads. After the call, we would have returned to say that we had further considered and agreed on trying other product-focused campaigns. This type of consideration and transparency builds trust with clients, as not all good decisions are made on the spot.
My experience in business has led me to realize that marketers are sometimes hesitant to offer transparency. In fairness to them, even business cultures foster secrecy vs. transparency when it comes to the actual performance of their campaigns in an effort to secure their clientele.
I have won multiple deals from other ad agencies throughout my career that did not have a transparent approach to communication and reporting. It is common for campaigns to take some time to produce results, especially in SEM for ecommerce where a company is typically bidding in a national search market. It is important that a team listens to the customer and is confident in their ability to turn things around and to be transparent with the customer.
Another area of communication I would like to discuss lends itself to previous conversations about requesting additional ad spend from stakeholders and ROI attribution. It is important for a campaign manager to request as much visibility and trackability into a customer’s revenue, so they can make important calculations like cost per acquisition across a holistic campaign and ROI attribution.
Without revenue visibility, it is impossible to fully determine the efficacy of any campaign. It is important to provide a thorough, situational and data-backed narrative along with reports that tell the entire story to clients. These reports should cover all impacts that campaigns have on revenue and point to data that supports specific recommendations and requests for difficult to attain items such as increased ad spend.
Data isn’t the only information relevant to performance. For example, if a business has a monthly budget of $4,000 to $6,000, it may already be more than they would like to spend. It might also be considerably less than what their competitors spend. This type of information can be essential for securing additional investment from stakeholders. They need to understand what they are requesting and what they are up against. Like it or not, sometimes stakeholders have to increase their ad spend if they want to compete—especially in a competitive market with expensive products.
If an agency charges a percentage of the ad spend, the conversation to secure a larger ad spend may be more challenging. If the management fee remains the same, that information is worth highlighting because it helps the merchant to realize the request for an additional investment is solely for increased spending with Google.
How Does Ad Scheduling Impact SEM for Ecommerce?
The above merchant account is a prime candidate for yet another discussion pertaining to SEM for ecommerce–ad scheduling. It is important to consider all of the conversion methods where SEM plays a role. This merchant has multiple website conversion methods that require customer interaction with sales professionals to complete the sale.
In our previous example, we established that a significant number of leads were being converted through calls, follow-ups, or chats. These leads ultimately necessitate the involvement of a full-time salesperson. Considering the advanced technology this company sells and the different dynamics they have with each customer, some individuals purchase bulk items through this merchant’s sales staff and/or require personal assistance.
Ad scheduling is an important tool to ensure that fewer ads are shown during periods where sales staff is not available. It is often overlooked in SEM for ecommerce and can be an excellent tool for stretching a conservative budget. If the business doesn’t require much human involvement in the sale, the timing of the ads becomes less important.
There are many factors to consider when it comes to SEM for ecommerce companies, as well as businesses with other revenue models. I have found that the above considerations are often overlooked and should be taken into account by stakeholders of SEM campaigns.
For providers, successfully managing accounts requires more than just managing campaigns. It requires valid perspectives of the campaigns from individuals who have the experience and understanding of what businesses want and need to hear. Together with the stakeholders, which include the campaign manager, a campaign is more likely to succeed if it is based on careful analysis, special considerations, transparent communication, and trust.