Question Posed to (or by) you: “Hello PPC Person, we have been reviewing your reports and notice that we spent more last month than in the previous period, but that higher spend did not correlate to higher sales/leads/revenue/bon-bons. Why not?” – sincerely, the Management.
This is not the first time this question has been posed, and will not be the last. It’s a reasonable question, after all when an account receives some level of sales it’s natural to assume that additional spend investment will see additional revenue… right?
Well, it’s complicated. I gave my best shot at answering it in video form, and also included (and cleaned up) a transcript. See below, and enjoy!
Hey, Kirk here. Another video here on PPC. What I want to talk about specifically today is, will a rise in your PPC spend actually correlate with a perfect rise in your revenue, sales, leads, whatever you’re selling?
So, a good question. A lot of times people will ask this saying, “Hey, since we’re having this impact, we’re having a 300% ROAS, return on ad spend, that’s happening with this spend, so can we push our budget? What if we doubled our budget, would we be able to maintain that 300% ROAS, and see double the revenue?” It’s a legitimate question, it’s a good question, and in some ways it’s kind of what you would expect, right? You’re getting this amount of revenue, you would like to put this amount of spend into it.
Here’s the problem. There are three things to note, three reasons why rise in spend does not perfectly correlate to the same rise in revenue all the time.
REASON #1: The Market Changes
The first is that your market changes. So what you’re in changes year over year. New competitors enter the scene, it’s a different market than the historical market. Not always, I realize that sometimes things are going to be a little bit more stable, but it is at least one thing to note, that what you are doing in spending this year, in 2018, almost 2019, is different than what you needed to do, to spend, in 2016 or 2017.
Part of that is, naturally we do see natural search rise in search CPC’s and spend, things just kind of progress over time. So if you’re looking at a year to date budget, and you’re saying, “Hey, we were able to hit this ROAS with this spend, that should correlate perfectly with this rise in the next year,” you’re making some major assumptions, and the first of them being all things are just going to remain perfectly equal… and they’re just not going to.
Things are also going to change in the way you manage the rest of your marketing channels, and how they play into all that, kind of that holistic marketing strategy. Lots and lots changes in the market and all of that influences how well PPC does.
So that’s reason number one, the market changes.
REASON #2: Changing Your Bids/Budget Changes the Market
Second, your increase in budget actually changes things itself. It actually changes the market.
So someone says, “Hey, we’re spending $10,000 a month. We want to spend $20,000 a month. Ready, you’re the PPC Magician, go!”
What does that actually look like, practically? We don’t have a double spend button that we push, and it just does that, right? So usually that looks like experimenting and finding new opportunities. Maybe we’ve been holding back on some keywords that we think they’re decent but we haven’t had the budget, and now we can turn those on. Maybe it looks like being more competitive for position. “Hey, we’ve been running well and doing okay at a three average position, with this extra budget we can be in a 1.5 or a 2 average position. And start showing more, get more clicks that way.”
The problem being, all of those things are us surging spend in places that actually changes how people react in that. For instance, (this is a very oversimplified instance of this), let’s say we are having the same keywords, and all we’re doing is increasing bids on those keywords. Well part of what that’s doing is it’s actually affecting things like our quality score, our expected click through rate, our ad ranking. And that changes the game, as well as pushing ourselves into higher position often results in higher click through rate, which means more clicks, which means more spend on those same keywords.
And so in a sense, instead of just perfectly taking all things as they are equal in this one instance, and duplicating that, saying, “Hey, what, can we get more spend?” We have, in some ways we have influenced and changed the market, okay?
So the question is, can we rubber stamp, can we clone the results? But now, what we’re looking at is doing that in a changed market. So no, you can’t perfectly clone the results.
So that’s another part of it.
REASON #3: Experimentation/Exploration in PPC Decreases Efficiency
And then the third thing to keep in mind, and I noted this a little bit already, but it’s the experimental side of things.
So in order to push budget, a lot of times what that looks like is us opening up some more keywords, maybe try some new audiences. A big part of marketing always is experimentation. You’re running ads on things that you know are going to work, you’re running ads on experimental markets, you’re trying to get these audiences to convert. You’re trying to see which of these keywords do, which do not work. Over time, if they do, if they do not work, you’re lowering bids, you’re pausing them, whatever it might be. That’s part of running pay per click marketing.
And so, when you surge spend a lot of times what you’re doing is opening up some of that experimental a little bit more, saying, “Hey great, let’s see what happens.” And what will happen every single time, unless you just miraculously happen to get this really great accidental group of experimental keywords that convert really well, what happens every single time is that you see an efficiency loss.
And that’s marketing experimentation, that’s exactly the point of it. But when you’ve surged, especially when you’ve taken really giant leaps, you’ve doubled your budget, that’s good, that’s great, then what that means is you, from the beginning as the key decision maker, maybe on the client side or the boss side, you need to have realistic expectations that there will be some efficiency loss.
As you’re seeing what happens, you’re doing these experimentations knowing that over time, maybe in six months, 12 months, you’re going to really see this start to take off with efficiency, ’cause now you’ve got this great data, and your PPCer’s have been making all of these great decisions on that, and over time you see that really start to pay off. But, if you say, “I want to double our budget, maintain ROAS as it is, and double revenue,” for the most part that’s unrealistic, and you’re not going to be happy. ‘Cause for the most part it’s not going to work, because of those three things.
I hope that made sense. I’m not saying it will never work, you may be hearing that thinking, “Well our PPC agency did that.” Well to be honest there are some times where you can push certain buttons, or maybe there are times where the market that you can control, especially more on the bottom funnel, is so strong that you’re not in yet, that you can keep pushing into those and spending more profitably. That can be an example of that.
Most of the time, especially if you already have an established account, most of the time if you really increase budget it’s gonna change the market and it’s gonna take place in terms of experimental stuff, where you see some efficiency loss, until you can really figure that out and cement that in.
So in some ways tough news, but it is the news you need to hear. And I think that’s why you can expect that, when you really push budgets forward, then push them forward knowing there’ll be a little efficiency loss and ready to see that start to convert better over time. Thanks, I’m Kirk. We own Zato, we’re a paid search agency based out of Billings, Montana, focused specifically on ecommerce marketing, shopping ads. Hope that was helpful to you today.