E-commerce

What Are Some AdWords Growth Strategies?

Hey Roy, we have a small business we are looking to grow and are looking for some AdWords growth strategies.  We'd love to get to the point where we are spending $100k or so in ad spend (and making money).  We can afford a ROAS of 5.6.  From what you can see of our account, what are your recommendations? Thanks for any advice you can offer up.

Artie

Hey Artie, that's actually an excellent exercise--one that I was putting in some time on recently, which you can read through here.

If we're talking about a 5.6 ROAS or 18% COS (hence the making money caveat), then that would require roughly $556,000 per month in topline revenue.  To start with, you only have 2,450 products currently active in Google Shopping. While the impression share (for the past 30 days) is only about 24%, that means that even with an infinite budget, we can only realistically expect to get 2-3x the impressions from the market for those products--nowhere near the 25x increase you're talking about (going from $4k to $100k). I'd say you need to expand your catalog by at least 10x, spreading that net wide enough to capture that many eyeballs (if you'll forgive the mixed metaphor).

If you had ten times as many products, let's assume you could get 15x as much traffic, as the traffic compounds as you build brand recognition, retarget that audience, and continue to tune the site's conversion. If we also get a 25% increase in conversion rate during that time, that gets us to almost 19x the conversion count--a good chunk of the way to the 25x target.

One client I have experience with had 40k products, of which about half are parts which are drop shipped, so the meat of the catalog was probably 25k products. 85% of the company's orders are fulfilled through their own warehouses and inventory. About 100 products made up 50% of the revenue and 800 products made up 85%. If even one of those top products runs into trouble (some jerk blowing them out on Amazon, or the like), it is a big problem for the company.  Over the last couple of years, they've worked to continuously explore new products, manufacturers, brands, and categories. Some products would over-mature, the price would drop out, and they'd need to replace it with something new--it was and still is a full time job for two people.

They've managed to spread out revenue to 500 skus making up 50%, and 1,800 skus making up 85%. That's still a lot less than the 25k products in their core catalog, but without those 25k, they would never have found or had the 1800 that really mattered. Also, the long-tail became healthier and healthier as they started to stock anything in that parts catalog that hit some traffic and sales threshold, which also boosted margins.

As I mention in the article, you then need to present the new products as effectively as possible. This includes product photography, but also supporting content (check out some of the videos on this site, for example), and conversion rate optimization. The great thing about CRO is that everything depends on conversion rates, so even a small change there gives you the freedom to do all kinds of things elsewhere in your funnel. For example, if you can amplify your conversion rates by a little, it actually frees you up to consider lowering prices (which has a dollar-for-dollar greater impact on sales than a larger marketing budget, for example), or other strategies. Sites live and die by conversion rates. But there are lots of tools out there that make that easier and easier to work on--but it does take a lot of time and attention. That's part of what I presented on at eTail last year, actually.

But the short answer is that the first step in that direction is to focus on sourcing and merchandising, as you need a lot more products to offer in order to have the draw for an audience that size.

Thanks for the question Artie.  Drop me a line if you have any other questions.  I love to talk shop.

Up and to the right,

Roy

Diagnosing Impression Share in Google Shopping Campaigns

Using Google's Auction Insight Report to Understand Impression Share Relative to Competitors

Roy, at first glance our impression share in our Shopping Campaign is very low (~15-18%) compared to our other campaigns that are much higher, and I’ve always assumed this was a huge opportunity for growth if we could get it right.  If I view the auction insight report it shows me that most of our direct competitors are lower. I have a feeling that there is some component of this that I’m missing and you could really only compare apples to apples if a competitor was bidding on the EXACT same brands and/or keywords.  I was wondering what you would make of this?  Basically is this typical or are we really missing the boat on impression share?

My understanding is that Google is showing you their impressions share across the same eligible impressions that you are being compared against. So, for example, a competitor might have an overall share of 30% for all of their eligible impressions, but only 17.24% of the impressions where you overlap with them.

But you're right to interpret impression share as opportunity. I also use it to detect match rate issues with product feeds. If you had a formatting issue with your MPNs, for example, then Google would report very high impression shares, as no one was competing with you for your typos. A low impression share means that you are matching against the products correctly, and that there are shoppers you're not meeting.

However, simply increasing your bids to try to reach them is a dangerous game. Rather, I focus on shifting money from areas of relatively low performance to those of higher performance. This is done through regularly updating the taxonomy to adapt to available performance data. For example, if a product is doing significantly better than its siblings in a Product Group, then it's subsidizing the rest of them, and once you isolate it, then it can bid much higher, and the rest of the group's bids shift down to compensate. Likewise, if an outlier in a group is underperforming, and soaking up costs, splitting it off frees up the rest of the group to fly a little higher. However, splitting them all out individually drives the sample sizes into the ground, and you end up guessing on almost all of them--that's the genius of Google's current structure.

The long game, big picture strategy is to also work on conversion rates overall. Any time you can boost either AOV or Conversion Rate, it is equivalent to increasing your COS, without affecting margins--as far as the bids are concerned. AOV * COS target * Conversion Rate = target CPC, after all, so Conversion Rate is often the most powerful lever, if the most challenging to actually affect. If you guys aren't using a tool like Visual Website Optimizer, Optimizely, or similar, then you might consider doing so--while most tests are washes, there are plenty of small wins to be had. And Scot Wingo was right in his Bronto keynote--a small change in your mobile conversion rate can have a huge impact, as that shopper segment is always growing, and a small change to a low conversion rate is a larger shift, as a percent.

Have questions?  Drop me a line via the Contact form--I love to talk shop.

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Use the AdWords Bid Simulator to Perfect your Budget

Using AdWords Bid Simulator to Identify the Point of Diminishing Returns

Well, you can't talk about the AdWords Bid Simulator, cost of sale, diminishing returns without a lot using a lot of raw data.  Don't worry, there's a puppy at the end.

When you increase your marketing budget, or your bids on a given AdGroup, the obvious intent is to capture more business at a slightly higher expense.  This can backfire, however, and it's important to understand a subtle way it can do so.  Everyone knows to watch their overall expense, but there's an undercurrent here worth exposing.

Let us consider this AdWords Bid Simulator screenshot:

Use the AdWords Bid Simulator to Perfect your Budget

This is Google's guess as to what the impact of a change in bid position might be, and while it's nowhere near perfect, they have quite a lot of data, and quite a lot of clever data scientists, so it'll do for our demonstration.  The first thing we're going to do is export the data from the AdWords bid simulator into a spreadsheet, so we can play with it.  Initially, that'll look like this, after I've expanded the columns to include derivatives of CPC (Cost per Click), CR (Conversion Rate), CPA (Cost per Acquisition), AOV (which I know for the period in question, and we'll use to estimate total revenue), Rev (Revenue, as determined by Conversions * AOV), and COS (Cost of Sale, percent of revenue spent on ads):

Use the AdWords Bid Simulator to Perfect your Budget - AdWord Bid Simulator Export

First, take a look at the CPC ranges.  The AdWords bid simulator indicates a 300% increase in your Max CPC bid only results in an 89.8% increase in the actual CPC.  This is because you're starting to dominate the search auctions at that point, so there are fewer and fewer competitors willing to chase a bid that high, and the Actual CPC starts to lag behind your bid.  Going the other direction, you can see that the competition actually gets stiffer, and the change in Actual CPC practically mirrors the bid change.

For the purposes of this exercise, let's say that the goal is to hit a COS of 35% or better--we want to spend no more than 35% of revenue on advertising.  Based on this, it becomes clear that we don't want to increase the bids too much, as we won't be able to make up the expense in volume.  If we presume that the break-even point is 55% (that is, a Gross Margin of 55%), then the first three rows all represent shifts that push the Campaign entirely out of profitability.  That's a big scary thing to happen for simply increasing the Actual CPC by $0.53.  As it turns out, those fifty-three cents matter quite a bit.

Here's how the COS plays out over the range of values:

Use the AdWords Bid Simulator to Perfect your Budget - Cost & Revenue Line Chart

Once again, you can see the auction saturation as the difference between +200% and +300% starts to level off.  This looks like a pretty typical curve, as you'd expect from diminishing returns.  Looks can be deceiving though, as these aren't linear jumps from each proposed bid change to the next.  However, we can interpolate what those would be, to see if there's a more recognizable pattern.

Bid change COS line chart.jpg

This view certainly clarifies that Google is showing you a lot more information about bid increases, and a lot less about decreases.  You could see that by looking at the data, but when you expand the graph to have a linear x-axis, that fact is even more obvious.  This doesn't change very much, though--it's akin to switching between a linear and a log-scale.  You still see the diminishing returns kick up rapidly, and then auction saturation kicking in around the midpoint of the graph, around +50% Bid Change.

Yeah, Roy, as I increase bids, I spend more.  No kidding.  So what?

Well, let's assume you already paid for the first 47 conversions (the +0% number), and you paid $3,069.62 for them.  If you moved up to +10%, then you'd pay $3,977.07, and pick up 54 conversions.  But that's a difference of $907.45 in additional costs, and $1,470.35 in additional revenue.  This means that you have an Incremental COS of 61.72%! That means that you just added orders to your balance sheets that lost you money, despite the fact that your overall COS is almost exactly on-target at 35.06%.

So, how can it be that the Campaign overall is still on-target and making money, but the orders I just added to the pile were harmful?  Let's graph the Incremental COS, along with the overall COS, to see:

Use the AdWords Bid Simulator to Perfect your Budget - Incremental COS Chart

There's a gap on the right side of the Incremental COS line, where +0% sits, as it's not meaningful to compare something to itself, and the rest of the points represent the COS of the difference between cost and revenue between that point and the +0% home-point.  As you'd expect, the values are lower to the left of home, and higher to the right.

But wouldn't this logic tell me to turn all my bids almost all the way down, then?

That's the obvious counter-position, and is a point worth considering.  Rather than looking at the difference between a proposed bid position and the +0% home-point, let's compare each iteration to its neighbors.  This will tell you exactly how much more (or less) you're paying for each step.  We'll call this the Iterative COS, to differentiate it from Incremental COS and Overall COS.

Use the AdWords Bid Simulator to Perfect your Budget - Iterative COS Graph

The Iterative COS line is stepped because it's like a derivative of the Incremental COS line, so when the slope of the red line changes, it sets the height of the yellow line.  It also clearly demonstrates the weakness of the linear interpolation we used to fill in the other points between the ones that Google gave us--realistically only those points are meaningful.  For example, if we look at the steps just below +0% home-point, it looks like there are plenty of values (down to -25%) where the Incremental COS is all 55%, which is of course not the case.  Still, a bit hard to interpret...

Use the AdWords Bid Simulator to Perfect your Budget - Finger Painting

While it's the statistical equivalent of smearing fingerpaint around, I'll do one more interpolation to smooth out the Iterative COS line, so we have a little easier time reading it.

Use the AdWords Bid Simulator to Perfect your Budget - Iterative COS Graph Interpolation

With this, we can see that the Iterative COS at the home-point is 56%--a shred above our break-even point.  So, we may want to slightly decrease our bids to shed those unprofitable clicks--but only slightly (and even then, the conversion counts probably put that difference well below a statistically significant level).

A perfectly tuned Campaign's last conversion makes a very small, but positive amount.  That's how you can tell if you're going to "make it up in volume" or not--if your Incremental COS for the next conversion loses money, well, as they say...

You can't make up a loss in volume.

In the end, the whole idea is to take the revenue you'd earn at your current spend, and evaluate any additional revenue separately, to determine if it's revenue you can actually make money with.

Oh, and I suppose I owe you one other thing:

Use the AdWords Bid Simulator to Perfect your Budget - Puppy Up and to the Right

Have questions about using the AdWords Bid Simulator?  Need help figuring out if your AdWords dollars are being spent correctly?  Email me at roy@statbid.com, and I'd be happy to take a look for you, and give you recommendations on how to catch a few more wins along the way!

Your AdWords account might be hiding nasty Monsters

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Spoiler Alert: this post takes us on a journey into account structure and management of AdWords Brand Campaigns vs. Non-Brand Campaigns.

Your AdWords account might be a pretty big and complex place.  It might have been built over long periods of time, with lots of different people or agencies contributing to what it looks like today.  However, there are almost always little nasties hiding in the cracks and crevices.  When you're looking across the vast expanse of data, taking it all in, it's easy to miss even large monsters in the totality of the big picture.

Luckily for me, rooting them out is one of my favorite things to do.  That's why I do so many free Account reviews.  Sometimes, the recipient implements the recommendations themselves, and I've made someone's business stronger.  Sometimes, we have a conversation about how I might be able to help more directly, although I don't really do them intentionally as a prospecting step.  Sometimes, the review is read and forgotten moments later--but even then, I had the opportunity to explore a whole new Account landscape, and hunt those little nasties down, and my tools get sharper in the process.  It's a blast, and I love it.

But there's one BIG monster I keep seeing that I wanted to share.  Hear me out, because I'd say about half of the Accounts I've seen are playing host to this profound performance parasite.

Your own AdWords Brand Campaigns might be killing your ROI

Just for clarity, "Branded" or "Brand" Campaigns, in this context, refers to Campaigns centered around searches specifically for your brand, domain, trademark, etc.  This is to distinguish this type of Campaign from "Non-Brand" Campaigns, such as your Shopping Campaign, or category and product-level Text Ad Campaigns.

AdWords Brand Campaigns tend to have very low costs, as a percent of revenue.  This is obviously because these shoppers are already familiar with your brand, know that your site sells stuff, and they're looking to buy said stuff.  That puts them about as far down the funnel as you can get.  Some companies don't even run these Campaigns, assuming that these shoppers are going to find them organically anyway--but it can be a good, low-cost defensive play for many others.

However, if you leave them lumped in with the rest of your Account when you're measuring the success of your AdWords overall, then you've just made a nice, warm, comfy home for this Monster.

Imagine that you are trying to spend 30% of revenue on your advertising, within the Account.  This is the same as saying you need a 3.33x ROAS, just in case you're used to using that metric.  As a percent of revenue, this is sometimes referred to as a Cost of Sale (COS).  Let's say, then that your goal is a COS of 30%.  Let's further assume that your break-even point is 35%--if you spend more than 35%, then you've exhausted your margin.

If you hop into your AdWords account (or perhaps your Agency sends you their performance report for the week), and the Account is spending 28%, you might see that as success!

However, if your Account includes AdWords Brand Campaigns, the reality might be slightly more complex.  The way that Branded Campaigns behave is fundamentally different than higher-funnel Campaigns, and this 28% report above might be the Monster's midden.

Want to see what it looks like when we shine a light into that hiding place?

When you average the performance of these two columns (as they are COS values over different amounts of Revenue), it produces the allegedly great 28% COS number we saw earlier.  However, it's actually hiding the fact that our Non-Brand Campaigns are actively losing us money.  I hate losing money.  It's just not my style.  I generally prefer to do the other thing.

So, how do you kill the Monster?

As we've learned time and time again (Smaug's underbelly from The Hobbit, Achilles and his heel, the Sontaran probic vent in Dr. Who, the thermal exhaust port on the Death Star, the mothership laser guns in Independence Day, the...), this Monster has a secret weak spot.

Measure AdWords Brand Campaigns and Non-Brand Campaigns separately.  That's it!  You should also set different COS targets for the two types of Campaigns.  In our example above, maybe the Non-Brand target should be 30%, but the Brand Campaign target should only be 10%.  And as long as you're measuring them separately, you'll never be infested with the hidden money-losing Monster.

Just remember--this Monster loves Agencies (and all monsters love a lack of transparency).  Many Agencies are financially motivated to give it a cozy home, after all.  If you haven't talked to your Agency about the difference between Branded and Non-Branded Campaigns...  maybe today should be the day for that question!

Don't forget to share this post with someone you think might be harboring this Monster.  You may be doing them a huge favor.  Be a hero.

Have questions?  Drop me a line via the Contact form--I love to talk shop.

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Check your Mobile Bid Adjustments. Now.

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If you are at all responsible for AdWords accounts, do yourself a favor, and double-check your Mobile Bid Adjustments. They're the most-overlooked variable in the review's I've done over the past few months, costing often thousands of dollars in wasted spend. How? Without an appropriate adjustment, it's likely that all of the competitors for that impressions are adjusted down, leaving you high and dry--and definitely winning the auction. Then, you are at the mercy of your Mobile Conversion Rates (and, to a lesser degree, your Mobile Average Order Values). If your Mobile visitors convert at one fourth the rate of your computer visitors, then you just over-paid by a factor of four.

This is an annoyance with one click, but if you're the one left in the cold while your competitors are all safe and warm behind their Bid Adjustments, then it could be hundreds of over-paid clicks. Or thousands. Or tens of thousands.

Left unchecked, I've seen Mobile clicks soak up 60% of the total expense of a large Text Campaign, and almost as much of a Shopping Campaign (the way Google displays PLAs on Mobile slightly mitigates the risk, but it's still potentially catastrophic). Considering that the same account tracked only 20% of its revenue from Mobile, that's way out of line.

Well, barring a near-science-fiction-esque multi-device tracking system, but let's be real--you probably don't have one of those. Nothing personal, just probabilities.

A Mobile Bid Adjustment is simply a coefficient that you can apply to all bids when they're for a mobile shopping impression or click. So, if you set your adjustment as a decrease of 50%, a $3.00 bid would only be worth $1.50, if the search was done from a phone.

Set perfectly, a Mobile Bid Adjustment will result in an identical Return on AdSpend (ROAS) on both Mobile and Computer segments (ROAS is reported as "Conv. value / cost". In general, you should know how many dollars of revenue you want to see earned by each dollar spent, and there are few reasons to value dollars from Mobile shoppers more than dollars from Computer shoppers. When you apply a Bid Modifier that reduces your Mobile bids, your clicks come in cheaper, and more efficient. There are fewer of them, but that's fine, because you're finally paying what they're worth. From that lower cost basis, the lower Conversion Rate (at least on most sites) is fine, as the two balance out to the same ROAS.

So, how do you pick a good Bid Modifier? Well, the ROAS itself, and many other options among the metrics in AdWords, aren't great candidates. If the metric you're using is directly influenced by the result of the modifier, then it'll produce a feedback loop, and your bids will likely over-correct, oscillating wildly.

The easiest way that I recommend is to rely on a Bid Adjustment proportional to the "Conv. value / click" metric. This passively takes into account variation in Average Order Value (as the Conv. value swings with AOV), but also the Conversion Rate, as the value divided by clicks would go down with more clicks required to get the conversion. So, if the Value per Click of Computers (in the Devices tab of the Campaign Settings) is $10.00, and the Value per Click for Mobile is $4.50, then you could start with a Mobile Bid Adjustment of -55%, as that would be proportional to the difference in that metric.

Reapplied monthly, or so, and you'll not only hone in on a fairly stable Adjustment for your shoppers' behavior, but also keep up to date as shopper behavior shifts over time.

So, do yourself a favor, take 3 minutes, and make sure you're not burning half of your marketing budget on accidentally over-paid Mobile clicks. Please.

Have questions?  Drop me a line via the Contact form--I love to talk shop.

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