As described by my colleague Eve in a previous post, at Metric Theory we always start a new client relationship with a benchmark document that defines past performance and a specific goal for paid search. The goal not only provides us a clear definition of what is considered “good” performance, but also allows us to prioritize account work.

However, setting a goal is often easier said than done. We often work with advertisers who have never before realized the full potential of their paid search efforts, or who have simply been running paid search without a specific goal, sometimes for years. In that situation, our first order of business is to guide the advertiser to select a goal that provides clear direction.

Imagine you are an advertiser working with Metric Theory. If you have good insight into profitability, we should set a goal based on the margins you need to achieve in paid search. Unfortunately, many advertisers face significant challenges calculating profitability, particularly those that are using paid search primarily for lead generation. In these cases, it is still important to set a specific goal. Without baseline profitability as a starting point, we turn to more general guidelines on goal setting.

 

  1. For ecommerce advertisers: use ROAS (not CPA) for goals
    • Whenever we have revenue data, we optimize to return on ad spend (“ROAS”) rather than cost per acquisition (“CPA”).
    • Say an apparel advertiser bids on both outerwear and socks in its Shopping campaign. Because outerwear and socks have such different average order values (“AOV”), an acceptable outerwear CPA of say, $30, would be completely unprofitable for socks. ROAS takes AOV into account by including revenue data, and is therefore a better metric to optimize toward.
  1. For lead generation advertisers: use back-end lead quality data where possible
    • Most businesses that generate leads use some sort of CRM system to track the leads that go to their sales team. It is generally simple to tag paid search ads with identifiers that will label these leads within the CRM system. Data on the quality of leads can then be tied back to paid search efforts to determine the relative value of campaigns, ad groups, and keywords.
    • For example, display campaigns can result in high numbers of form fills for lead generation advertisers at a CPA much lower than their search campaigns. However, when lead quality data from the CRM system is taken into consideration, it is typically found that these are low quality leads. As a result, display campaigns, despite their relatively low CPA, actually have a very high cost per quality
  1. Look at historical data to determine what’s possible
    • Before setting a goal, be sure to consider recent performance as well as longer-term performance going back 12 months or more (where possible).
    • Consider external factors that impacted performance: total paid search spend, holidays, sales, events/tradeshows, etc.
    • Set a benchmark using the last 3 months and work towards steady improvements. At the very least, your goal should be to improve on where you are now.
  1. Consider indirect goals
    • Do new customers generate recurring revenue over subsequent months that isn’t reflected in their first purchase? Is paid search your main brand awareness channel?
    • Even if you do not know with certainty the lifetime value of a customer, many businesses know the value of a new customer is higher than reflected in direct metrics. For example, say that you are an ecommerce advertiser with a high customer return rate. If paid search is driving the majority of new visitor traffic to your site, you don’t want to limit the growth of your customer base with too high of an ROAS goal.
  1. Balance volume & efficiency
    • All advertisers want to increase both revenue and ROAS, or increase conversions while decreasing CPA. While we often find this is possible in the long run, these metrics face near-term tradeoffs.
    • Optimizing toward growth requires a different paid search strategy than optimizing toward efficiency, and which goal we choose will determine short-term outcomes.
    • If you’re not sure where the balance lies, ask yourself: Would I rather have more revenue at the same ROAS I have now, or the same revenue I have now at a higher ROAS? Your answer will determine whether growth (revenue) or efficiency (ROAS) is more important.
  1. Build in flexibility
    • The best paid search goals allow for flexibility based on seasonality, new product launches, sales, recent performance, etc.
    • If an ecommerce advertiser is profitable on its paid search efforts at a 5.0 ROAS, for example, the best goal might be one that allows for an unlimited budget as long as the 5.0 ROAS is being achieved.
    • This could mean that an advertiser spends quite a bit less in slow months, and significantly more around the holidays, when we don’t want to leave profitable revenue on the table. We encourage this type of spending trend with advertisers that experience significant seasonality.
  1. Choose a goal that does not limit your ability to test
    • Paid search is always evolving, and there will continuously be new areas to explore. Some recent examples include Bing product ads, dynamic remarketing, Remarketing Lists for Search Ads (RLSA) campaigns, affinity audiences for display, etc.
    • Introducing new strategies requires flexibility within budget and goals to determine whether the new effort will be successful – sometimes we will be right, and sometimes we will be wrong.
    • Setting a goal that limits your ability to test and evolve along with paid search will ultimately hurt your efforts in the long run.
  1. Reassess goals regularly
    • Goals are not static. Just because a certain goal made sense last year doesn’t mean it makes sense now.
    • Has your business changed? Are you more focused on growth than the bottom line this year? What are your overall business goals, and how does paid search fit into that?
    • Revisit your goals at least quarterly to confirm that you are still optimizing toward something that makes sense for your business.

 

Paid search without a goal is like a ship at sea without a compass – even if you have the best agency at the helm, they won’t be able to steer you to victory without a clear direction. While setting a goal can seem like a daunting exercise, just remember that the goal is not set in stone, and you can always adjust it to reflect your changing business needs. Your paid search efforts will become far more focused and effective with a specific point on the horizon to steer toward.