Are Ads On Google (Google Adwords Ads) An Effective And Profitable Marketing Method?

Last night I was checking my news (I love to read about businesses and business type stuff) and came across an article on study conducted by Ebay. The title read "Ebay's Study Questions Value Of Google's Main Ad Service". The study has some interesting results and got me to thinking that I should conduct my own review to let other small business owners know if Google is a good choice for marketing a small business. Since at Profitworks we conduct many different marketing campaigns for many different clients I have access to google adwords return on investment data that will help answer this question for small business owners.

Google Adwords - Does It Have A Positive ROI?

Executive Summary

- Google Adwords should be a profitable marketing medium for most small businesses but Google Adwords Express will not be a profitable marketing method for most small businesses

- Referrals, email marketing and website content creation services all have a much higher return on investment then Google Adwords and should be included in any businesses marketing mix before adding Google Adwords

- website content creation services is a more effective marketing spend to increase traffic and sales from your website

- Google Adwords provides incredible flexibility to target select prospects and determine your own amount for how much you will pay per click that should enable any business to make a profit from Google advertising

- in order for Google Adwords to be profitable you will need to bid significantly lower than the industry norm

- in order for Google Adwords to be profitable you need to have a clear understanding of how much profit per customer you make from your website and the conversion rate of your website

- Google Adwords provides excellent testing and result tracking tools that should allow any small business with the help of an expert to continually improve the ROI received from Google Adwords

- advertising on Google is complex and requires the assistance of an expert or a significant amount of time to be effective and profitable

The Study From Ebay Says Google Adwords Not Effective For Them

The article from Ebay was definitely interesting. It made some pretty bold statements that I am sure Google is not happy about. Here is a summary of the key findings.

Key Findings

- google Adwords search advertising is not an effective marketing method for large companies with recognizable brands

- for large brands Google Adwords search advertising is an estimated negative ROI of -75%

- small businesses lack the name recognition of larger companies so Google Adwords may be effective for them

Basically Ebay concluded that for its business incremental revenue from Google Ads was minimal as it found almost all customers would have went ebay regardless either directly, via organic search results or other methods. How they came to this conclusion is that they turned off their adwords in some regions and kept Google Adwords advertisements on in other regions. There was no appreciable drop in sales in the region where they turned off the Google Adwords. Ouch, basically they are not even saying that it resulted in a increase in sales that justified the cost, they are saying that Google Adwords did not increase sales AT ALL...ZERO.....NONE. That is a strong statement on the non effectiveness of Google Adwords. The study estimated that for Ebay the Google Adwords Campaigns generated about $0.25 in extra revenue for $1.00 in spending, resulting in a negative ROI or 75%.

In 2011 Google spent $42.8 Million on Google Adwords advertising. If they stop all of their search advertising that would not equal the full $42.8 Million (because I am guessing they are doing some content, video and remarketing...see below) but I would assuming it is at least half. That means if they stop their search advertising on Google they could make an extra $21.4 Million in profit. That is a lot of money. How much do you send on Google Adwords in a year? By stopping your Google Advertising could you take that money right to profit? Continue reading to find out.

Google apparently claims that 89% of Google Adwords clicks are incremental clicks to their advertisers websites. After reading the above study what do you think? Continue reading to learn and make a better judgement.

Article Sources

If you want to read more about this story here are two different publications that posted the story

Reuters.com - http://uk.reuters.com/article/2013/03/13/us-ebay-google-idUKBRE92C00M20130313

The Huffington Post - http://www.huffingtonpost.com/2013/03/13/ebay-study_n_2864229.html

Yahoo Finance - http://ca.finance.yahoo.com/news/ebay-study-questions-value-googles-001644249.html

Understanding Google Adwords

Google Adwords is complex. First there are multiple different kinds of ads you can have

Types of Ads

Search Network Ads - these are the ads most people think of when they think of Google advertising, these are the ads that show up at the top, the right side and the bottom of Google search results

Display Network Ads - Google's network of partner website that show their ads, these can be either image, video or text ads

Remarketing Ads - image ads that reappear to people who have been to your website when they are on other websites that show ads from Google.

Video Ads - exactly what they sound like, ads that are videos

Click To Call Ads - where when the user clicks on the ad they are not sent to your website but they instead call you business

Next there how you will pay for your ads and how much you will pay for your ads. With Google Adwords you bid how much you are willing to pay to have your ad shown to who you have selected to show it to and if your bid is high enough your ad will be shown. The higher your bid the more likely it will show and in the more prominent positions it will be shown. You can also change the amount you are willing to pay for any of your ads. Because there are so many different ways to modify who your ads are shown to, it allows you multiple ways to adjust how much you are paying for a visitor to your website. For example you may wish to pay $2.00 for someone looking business cards, in Toronto, on a smart phone at 6:00 am reading the website in French and be willing to pay $4.00 for someone looking for banner printing in New York, on a desktop at 3:00 pm and reading the website in English. In addition there are two different ways to pay for your ads, one is based on clicks and the other is based on how many times your ad is shown.

How You Will Pay For Your Ads

Cost Per Click (CPC) - you pay each time your ad is clicked on

Cost Per Impression (CPM) - you pay for each time your ad is shown, calculated on a per 1,000 impressions

To learn more about CPC and CPM read our article Cost Per Click vs Cost Per Impression - Which One Is Better?

In addition within Google adwords there are multiple ways to modify how your ads will be shown and to who. These can all have a significant impact on the cost, click through rate and ultimately profitability of your ads. The different ways you can modify how your ads are shown are

Ways You Can Modify The Way Your Ads Are Shown

Geographic Location - by country, state/province, city/town

Ad Content - the text, image or video within your ad

Time Of Day - the time of day and days of the week your ad is shown

Devices - the type of devices (tablets, desktops, mobile phones) to display your ads to

Languages - the type of languages people are reading to show your ads to

Social Settings - whether to display the +1 button or not

Ad Rotation - what method Google will use to rotate your ads

Keywords and Topics - the words people are searching for or the topics of the websites people are viewing

IP Exclusions - Exclude certain computers from seeing your ads based on their IP address

When using the above you can set up multiple different "Campaigns" to test how ads with different targets and variables affect the performance of your ads. Within the Google adwords system there are many terms that can be confusing here is a summary of what each is

Google Adwords Interface Terms

Campaign - at this level it allows you to modify all settings of how your add will be shown, you should always be testing multiple campaigns to see how different targets and options perform

Ad Group - within a campaign you can have different ad groups. Each ad group can contain similar ads. For example you might have one ad group that has a bunch of ads for selling paper and another ad group that has a bunch of ads for selling pens. You can also adjust the bidding for ad groups changing the price you are willing to pay for each ad group.

Ads - within each ad group you can have multiple ads. It is advised that you have 2 to 3 ads in each ad group at all times running as this will allow you to test different ads to determine which performs better. By conducting this continual testing you will be able to continually improve your results. Google automatically splits the amount of times each as is shown so that all ads are shown and you can see which performs the best.

Ad Extensions - these are options for your ads to enhance them. The full list of options include showing your location, having the click activate that they call your location, linking people's endorsement to your Google+ page, including more product information, including seller ratings, including additional links in your ads, promoting in-tore coupons and automatically promoting deals in our ad text

Dimensions - specific details about where your ads are shown and which ones where clicked on (this data is only available if you link your Google Adwords account to your Google Analytics account). It allows you to view this information by any of the ways you can modify how your ads are shown. This is an incredibly powerful tool for understanding how your ads are working and how to improve them.

Cost Versus Other Online Marketing Methods

Dollar Costs

The costs of per click of Google Adwords, even at a very aggressively low target of $3.00 per click is still significantly higher than many other online marketing methods. Below is a chart racking the cost per 1,000 impressions for some of the most common marketing methods. If you look at the green highlighted bars (which are the other online marketing methods) in the chart below you can see that only Linkedin advertising is more per impression. In addition there are numerous offline marketing methods that cost less. Depending on the conversion rate of these offline methods they may also be a better option for your advertising dollars. In addition some other marketing methods like website content creation and outdoor media (if permanent), has recurring benefits after year one even if the project is concluded. For example with website content creation services, if you end the campaign your website will continue to generate additional website traffic even though you are no longer paying for the service. Where as with Google Adwords, once you stop paying you stop getting additional visitors to your website. Looking at the graph you may also conclude that Bing Ads are the better choice given the services are almost identical and Bing ads are significantly less expensive. This is a fair hypothesis and one that you should investigate, this may or may not turn out to be true. Again it comes down to cost, conversion rate and profit per sale....not just cost. In order to determine if Google Adwords is effective or not though, we need to look at the conversion and profit generated, not just the cost to make any conclusions.

Google-Adwords-Cost

Time Costs

To do Google Adwords well requires a lot of time. Setup time, weekly monitoring time, weekly refining time, testing time. Google has provided the Google Adwords Editor which does help with making these processes faster but even still it still requires a lot of time. If you are a small business owner seriously consider how much time it will take you to learn and run a Google Adwords campaign, in most cases it will probably be best to either get a professional to run the campaign for you or choose a different kind of marketing method to spend your marketing dollars behind. Not sure what marketing methods are the best for your business? Contact us and we would be happy to provide some guidance.

Cost By Industry And Calculated Break Even

Cost By Industry

Below is a graph showing the range of costs per click for commonly advertised keywords by industry. As you can see the price paid varies greatly not only between industries but also within industries. This makes sense. Certain industries will make more profit per sale then others because they have either higher margin products or higher ticket price items. In addition firms within one industry should be willing to pay more for certain keywords as certain keywords will have higher conversion rates and higher profit per sale. For example selling a trip to New York to someone in Canada will probably not generate as much revenue or profit per sale as selling them a trip to Greece. The question is, will spending $50.00 on finance and spending products going to create a positive ROI? In order to determine this we need to know conversion rates and profit per sale.

Cost Per Click By Industry

Source: http://econsultancy.com/ca/blog/8794-breaking-down-google-s-2011-revenues-infographic

Break Even

The formula to calculate your break even cost per click is the following

Google Adwords Break Even Formula

With the information from the above graph lets calculate which industries Google Adwords is a positive ROI marketing investment. To do this I am going to assume an estimated conversion rate of 1%, use the lowest range of the CPC costs for each of the industries from the above graph and make some estimates on profit per sale.

Google Adwords Break Even By Industry

The above chart shows, under the given assumptions, which industries have a positive return on investment with Google Adwords. The industries where it is profitable are those that have a combination of lower CPCs and higher profit per item. From the analysis above, for the majority of industries Google Adwords is not a profitable marketing method. By investing in Google Adwords, most businesses are probably losing money. Again there are a lot of assumptions in these calculations but if you complete this analysis for your business you should be able to remove all of the assumptions and use figure you know for sure are accurate. By completing this analysis you will be able to tell if it is a profitable marketing method for you. My guess is that in most instances it will not be, but if you are experienced with Google Adwords or have an expert running your campaign it may be very profitable for you.

Comparison Of Achieved ROI To Date Versus Other Methods

Overall

From the chart below you can see that Google Adwords does have a decent ROI but that it is significantly less effective than numerous other marketing methods. The below chart also assumes that new customers continue to purchase from you at the same rate for at a minimum of three years. If you look at the return on investment for a single year of sales, the ROI for google Adwords drops to 74%. If the nature or your business means customers only buy from you once, you need to take this into account. To learn more read our article on themost effective marketing method for small businessses

Marketing Return On Investment (3 Years of Sales)

3 year marketing method ROI

Costs and Return On Investment By Ad Type

You can see that there is a significant cost increase between some of the ad types. Again to determine ROI you need to look at the conversion you are getting for each ad type but the cost it self can give you a good indication. Below are the average cost per click by ad type we have seen.

Google Adwords Average Cost Per Click By Campaign Type

Google Adwords Average CPC (Cost Per Click) by campaign type

Search Network

The search network are ads that are shown within Google search results. These are the ads shown on the top, the right side and the bottom of the search results when you search in Google. Our results have shown that this method can be a profitable marketing method but that it requires complicated account setup, testing and tracking. In addition it does not have as good of an ROI in most cases when compared to display network ads.

Display Network

Google Ads that are shown in other places then the search results. Google has other products (like Gmail) and partner websites that also display their ads. These are called display network ads. Usually these ads are less costly then search network ads and in our experience they have shown to have a better return on investment.

Google Adwords Express

Google Adwords Express is a simplified Google Adwords for local businesses that allows them to advertise when people are search for a certain product. Google looks after selecting all of the keywords and doing all the behind the scenes campaign setup. All you have to do is create your ad. The problem with this type of add is that the cost per click is much higher and the minimum allowed is $1.67 per day. Our results have been that the cost per click usually works out being over $2.00. Given this is the case if you want to have your ads show in search results, using the search network ads will give you a better ROI than Google Adwords Express. Because of the higher cost per click this method is not recommended for any business and will most likely not be profitable.

Remarketing

Remarketing is where Google allows you to continually show image ads to people that have already been to your website. We have yet to see significant results from the re-marketing efforts but this is relatively new for Profitworks and we do not have as much history to analyze compared to the content network or display network. Remarketing is also hard to track because there is additional value in having customers and prospects continually see you ads as they browse the internet. You can see there ads multiple times in a short time span and even though they do not purchase they remember your brand for when they are ready to purchase. A great example is Cosby Volkswagon. I went to their website once and then for about a month after that I kept seeing their ads. I never bought or thought about buying a Volkswagon from them but Cosby Volkswagon has benefited from the ads since I am promoting them here. The first place I think of when I think of new cars is Cosby Volkswagon because I saw the ad so many times. To capture this kind of value remarketing can create you need survey customers to determine if they are seeing you ads and what kind of impact it is having on them. Our hypothesis is that remarketing can be a very profitable marketing method if executed with the right strategy. If you want to learn how to do remarketing click here.

Video Ads

Video ads are where you can have your video show up on Youtube or on websites that partner with Google and show ads from Google. Video ads are relatively new for Profitworks as well and therefore we have less data on this type of Adwords ad. The interesting thing about this type of ad is that it can ad sound and motion which allows for a much more effective communication of your message. So far we have not seen significant results thought that are worth touting this type of advertising as effective. To learn about video ads click here.

Click To Call Ads

We do not have an data on this type of ad yet to add much commentary on it. I would suggest that this is probably an effective marketing method as prospects are usually closer to purchasing if they place a call then if they just browse your website. To learn more about it click here.

Keys To Optimizing Google Adwords Marketing Efforts

The keys to optimizing Google Adwords really comes down to a few things

Geographic Targeting

1. Geographic Targeting

For geographic targeting you need to hone in on where you want your ads to show. There is no need to show your ads in California when your business only services the city of New York. Target the cities that will result in the highest conversion rate. If you only win 50% of quotes with customers in a given city and 80% of quotes in the city your business is located in, only advertise in the city you are located in to optimize your return on investment.

Negative Keywords

2. Negative Keywords

Make sure if you are doing search and using broad match keywords or phrase match keywords that. If you don't probably 80% of your budget will go to clicks from searches that have no relevancy to what you sell. The only time you don't need negative keywords is when you are doing campaigns that are only image ads or only contain exact keyword match types. To learn more about negative keywords read this article - Google Adwords Not working? Try Negative Keywords.

Proper Bidding

3. Proper Bidding

You need to understand a few things to determine what you proper bidding amount is

A. What percentage of people that come to your website from Google Adwords buy. (if you don't have this us 1% as an estimate)

B. What your average profit is from each Google Adwords website purchase (lets assume $25.00 for an example)

C. A calculation of how much you should be paying for each cost per click to break even.

To calculate #3 all you need to do is take is divide one by your percentage of people that come to your site from Google Adwords and divide you average profit per Google Adwords website sale by that amount. For above assumptions this would mean 1/1% = 100 and $25.00/100 = $0.25. In this scenario the most you should spend on Google Adwords per click is $0.25 or you will be losing money.

Conversion Tracking

4. Conversion Tracking

Conversion tracking is a tool that combines Google Analytics and Google Adwords that shows you what campaigns, keywords, time of day, search queries and destination URLs are getting you clicks. In addition for each of these it also shows you if the desired action is taken if you set up website goals. You can set this up to track the number of people that purchase, view a particular page (ie contact us) or if the complete a form on your website. It is important to set up conversion tracking so that you can see how many sales you are actually making from your website. This will also help you determine which campaigns are profitable. Then over time you can stop or refine the lowest performing campaigns and increase the amount you spend on the best performing campaigns. To learn more about conversion tracking go to http://support.google.com/adwords/answer/1722054?hl=en, to learn more about setting up website goal tracking go to http://support.google.com/analytics/bin/answer.py?hl=en&answer=1032415. In addition to doing this online tracking you should also be tracking offline purchases and where they come from. This will let you know if you get a sale from a Google Awords ad by someone clicking on your ad, and then calling you or visiting your location instead of purchasing online.

Continual Testing

5. Continual Testing

In order to really optimize the ROI you receive from your Google Adwords ads you should be continually testing. The key things to test are

A. Desktop vs Mobile vs Tablet

Try testing three identical campaigns that the only difference is that they are only shown to one of the three options (desktop, mobile phones or tablets). Then compare the results. You might find out that one given type costs more but gets you larger purchases or a portion of visitors purchasing and many lead to a higher ROI. Once you find the most profitable you can focus solely on those type of ads, or if they are all profitable you can continue to do them all.

B. Different Ad Copy

Test different heading and body text of your ads. You should find that the text in these places will greatly impacts your ad position, click through rate and ultimately cost per click.

C. Different Keyword Match Types

Test different types of keyword match types. You may find that either one of exact, broad or phrase match keywords perform better for your business then the other two. When testing this make three identical campaigns and have one that uses exact keywords, one that uses broad keywords and one that uses phrase keywords.

D. Search vs Display Network

Usually display network clicks are less expensive then search network clicks. This does not mean they are more profitable, you need to understand what the conversion and average profit per sale is from each type of ad and compare it to the click costs. In order to test this again create two identical campaigns but set one to show only on the search network and set the other one to display only on the display network. To learn how to do this check out this link http://support.google.com/adwords/answer/1722050?hl=en&from=99478&rd=2

E. Different Keyword Groups

Come up with different keyword idea groupings and test these against each other. For example if you are a printer create one campaign that focuses on keywords related to printing business cards. Create another campaign that focuses on printing posters. Then compare the two and see which has the best ROI

F. Other

There are so many different things that can be tested from the time of day you show your ads, to the day of the week you show them to what city you show them in. Really you can test any type of targeting feature Google Adwords provides. Continually testing new options to see which results in a lower CPC and higher ROI will mean you will constantly be improving your ROI from Google Adwords.

Get Professional Help

6. Get Professional Help

Just like driving a race car, you should not just let anyone do it. Put some inexperienced behind the wheel and only bad things can happen. If you want results with Google Adwords you should probably hire a professional unless you have lots of time to invest to learning how it works. The other thing to consider is that usually getting a company to provide you with a content creation service for your website will result in a better ROI than Google Adwords.

Get Customers Blog - Go To Blog Homepage

My name is Chris R. Keller. I work at Profitworks Small Business Services helping various business to business small businesses in Waterloo and Kitchener Ontario generate new customers. Feel free to connect with me on Google+ or if you are just interested in getting new customers for your B2B small business enter your email in the box provided below and click the "Send Me Free Marketing Insights" button.