Advanced ROI Measurement Tactics, Part III: Cost of Goods Sold
This is my third post in a series about SEM tactics that lead to greater ROI from search campaigns. (The first focused on online/offline data integration and the second on keyword assist or cross visit participation (CVP).
A report just released from Omniture revealed a major challenge search engine marketers are currently facing: it seems most search marketers struggle with getting to the deeper, more insightful data that will have a bigger impact on revenue. They’re making important business decisions based on superficial metrics such as click-through rates and cost-per-click. Those metrics are valid and have an important place in overall marketing analytics, but there are more valuable metrics that marketers are ignoring, at significant cost to their companies.
By looking at cost-of-goods-sold, and getting a true picture of return on investment (as opposed to return on ad spend), SEM marketers can stop leaving money on the table.
Tactic 3: Cost of Goods Sold
Most marketers look at the cost of a search marketing campaign and at revenue returned from the campaign. So when they talk about return on investment (ROI) what they’re really looking at is return on ad spend, rather than the return on total investment. That’s because a true measure of ROI takes into account the margin and profitability of the company’s products.
Say, for example, that a retail site has a big box, $2,000 item that weighs several hundred pounds. Because the cost of getting that to the shop or warehouse, and then shipping it out again (for online orders), is much higher than that of a smaller item, the margins are tighter. Now say that item comes with some accessories. Complementary items may be smaller in value but higher in margin. Selling more of the big-box item may result in more revenue, but at lower margins.
Knowing the margins of the products can help retailers know how much money they can spend on keywords for one item versus another.
This is a simple process with SiteCatalyst, assuming you know the profit margins of each product. (If you don’t know the margin on your product, the information on this tactic can drive a discussion internally.) Once you have feed the data into SiteCatalyst, you can begin optimizing for true ROI rather than just for return on ad spend.
You might discover that you were losing money on certain keywords without knowing it. Or you might discover you can affordably spend more money on certain high-performing keywords. Either way, you’re certain to improve ROI simply by having the right knowledge at hand.
The next step is even more exciting: layering this solution with the online/offline data integration (also layer with Tactic 2 that I wrote about last month) and you’ll get an even truer picture of ROI.
Next time, I’ll discuss how you can improve measurement, and ultimately improve ROI, for cross-channel marketing campaigns.
In the meantime, if you’re interested in learning more about the challenges marketers face in effectively managing search campaigns, see the Omniture Search Engine Marketing Readiness Survey.