Profit-Maximizing Acquisition Campaigns

In digital acquisition campaigns, there exists a basic tradeoff between volume and efficiency. As we attempt to drive more volume, we generally have to sacrifice efficiency. I will go on to explain that for every business, there is a specific point on this volume-efficiency curve that will maximize profit, and that finding this point should be the goal of any acquisition campaign. I will use paid search as an example, but the same basic principles apply for display media, lead buying, etc.

The first thing we should do is understand the tradeoff between volume and efficiency, and why it exists. I will illustrate with an example using a hypothetical paid search acquisition campaign for Rainbow Sandals. The goal of this campaign is to sell men's sandals on the Rainbow website. Let's say this campaign only has $1 in its budget, so it will be extremely targeted. It will likely only bid on a single extremely relative keyword, such as "buy men's rainbow sandals online". People searching on this single keyword will clearly be in market, and will have a high probability of purchasing sandals on the site. This extremely targeted keyword will also have low competition, so the cost per click will be quite low. The low cost of the keyword and the highly qualified audience will lead to a very low cost per acquisition (CPA = $ spent on advertising / # pairs of men's sandals sold). This is great in terms of efficiency, but Rainbow will likely want to bring in more business than can be generated with $1 of advertising. As they put more money into the budget, at some point they will have maxed out how much they can spend on this specific keyword (there is a fixed # of people searching this term), and they will need to add a second keyword. They will now choose the second most efficient keyword. Maybe it is "buy rainbow sandals online". Now that they have removed "men's" they may get women clicking on their ads, which is not the goal of this campaign. This will result in some inefficient spend, so the new CPA will be somewhat higher than when they were only running with one keyword. Please note that keyword efficiency is just an example. The same principle applies to targeting the most efficient geographies, times of day, etc. The pattern continues as more spend is added, and your most efficient options are maxed out, creating the graph we see below, where CPA increases with volume:



Now that we understand the basic tradeoff, we should think about how the company's revenue model comes into play. Let's say that Rainbow sells their sandals for $40 a pair. At some point on the volume-efficiency curve, the CPA rises above $40, and it no longer makes sense to increase volume. [Yes, we should be looking at contribution margin, not revenue, but for the purposes of this example we will make the (clearly inaccurate) assumption that the variable costs of producing a pair of sandals is $0, so revenue and contribution margin are the same. In reality, you should use your product's contribution margin, or better yet the total lifetime value of an acquired customer]. This next chart illustrates that once CPA equals revenue, increasing your volume means your campaign will have a negative impact on your bottom line:



So we know that we must operate at a point where CPA is less than revenue. But where? The below chart brings Total Revenue, Total Cost, and Profit into the mix. There is a lot going on here, but it's not too complicated. First off, we have Total Revenue (Revenue x Volume) illustrated by the sum of the blue and yellow boxes. We also have Total Cost (CPA x Volume) illustrated by the blue box. Profit (Total Revenue - Total Cost) is illustrated by the yellow box. Your job is to maximize the size of that yellow box.



So where is your sweet spot? What level maximizes your profit? If you have not been thinking about it this way, then most likely you are not there today, and you have room to improve. You will want to find out if you are operating at CPA High, or at CPA Low. If you are at CPA High, you should trim some of the fat and scale down. If you are at CPA Low, there are additional opportunities that you are not taking advantage of.



So how do you find your profit-maximizing point? It is actually not as difficult as you might think, but that is a topic for another day.

You want in to the web analytics community?

We can talk to no end about the fantastic opportunities in our field. More advertising dollars are going into Digital every year, and the days of running campaigns without quantifying their impact are over. Everything must be measured and optimized, and more and more advanced analytics techniques are being used to drive business decisions. These trends have created an environment where the career opportunities are ever-expanding, and the talent pool is not nearly as deep as employers would like it to be.

In the face of the exciting, fast-paced, and highly lucrative opportunities available for those seeking jobs in web analytics, the vast majority of candidates have no clue how to break in to the community. No one has articulated what employers are looking for. If you are struggling with this very situation, the following has been written for you:

When we are talking to potential entry level candidates, we generally look for two things right off the bat. The first is general math aptitude. We love to see applicants with math, economics, finance, or computer science backgrounds. If this does not describe you, that's okay. I have seen a number of standout analysts come from non-quantitative fields of study. Just know that you will need to somehow demonstrate a love for numbers in order to be given a chance.

The next thing we look for is a passion for learning. The skills a Web Analyst needs are many, and they are all learned on the job. We do not expect candidates to have the skills they need when they show up for an interview, but we do need to know that they are excited to learn. There is a considerable ramp up period before new Analysts become useful resources. It is great to see a candidate who touts their ability to learn quickly, which will reduce the length of that ramp up period, and increase their likelihood of success in the role.

Once a potential Analyst has passed through the first two criteria, we then start to think about the additional attributes that would make someone a potential star. The big one is communication skills. I do not believe in the back room Analyst. To be successful, candidates need to be able to work effectively with the internal team, and be able to convey competence and thoughtfulness in front of the client.

The last character trait I am looking for in a candidate is ambition. The role of a Web Analyst is one where there is an unbelievable amount of opportunity for someone who is willing to put in the extra time and learn new skills. When we hear that someone is willing to pick up a book and teach themselves something new, that is of great value to the team.

You will notice that I have not mentioned anything about SiteCatalyst, Google Analytics, or other technical web analytics skills. It has been my experience that the character traits and general math aptitude are much more important than hands on experience with the tool set. I have hired eight Web Analysts so far in my career, and only one had any previous experience with the tools he was going to use.

That is not to say technical skills are unimportant. If you have some basic html experience, that is a huge plus. If you consider yourself an Excel guru, we will love you for it...but only if you pass the initial character tests firsts.

I hope you have found this helpful. If you have any questions, don't hesitate to contact me.

Getting Started in Paid Search Advertising

In the last post, we talked about the importance of utilizing search engines to market your products. This time, we are going to be talking about the key things you need to think about when setting up your campaigns.

To get started in advertising on search engines, you need to set up an account with one of the major engines. I recommend working in Google AdWords to start. Google has by far the largest volume of searches, and if you need to expand later, you can create similar a account to serve ads on Yahoo and Bing.

After setting up an account, the first thing to nail down is your keyword set. Think about your business, and make a list of the words that people would type in to a search engine when they are in the market for your products or services. I recommend putting together an exhaustive list, and then putting it down for a day or so. Then come back and figure out what terms you left out. You can also use Google's keyword tool (within AdWords) to think of other opportunities you may not have thought of.

The second part of putting together the keyword set is thinking of negative keywords. Negative keywords are searched terms for which your ads are supressed. For example, if you have an online store selling women's shoes, you will likely be bidding on the terms "shoes" and "women's shoes", but would not want to waste money serving ads to people searching for "men's shoes". Using negative keywords keeps your ads targeted to the right audience.

Once your keyword list is ready to go, you are going to need some ads. They should contain copy that is as relevant to the search keywords and your business as possible. Think of the benefits of your product. Why would a potential customer want what you are selling? Try to articulate these benefits clearly and concisely, and finish the ad with a call to action telling them what you do. Commonly effective calls to action include "Buy Now", "Save Today", etc. You want to let them know what to do and convey a sense of urgency at the same time.

Once you have created your ads, you will want to take advantage of the targeting options provided by the search engines. For example, if you only sell to the 48 contiguous states, make sure you exclude Alaska and Hawaii from your campaigns. With paid search, you don't have to waste any ad dollars outside of your market. Also, think about the times you want to serve your ads. For an E-commerce store, it probably makes sense to display your ads around the clock, but if your main goal is to drive customers to a call center that is open only during business hours, you will want to be more selective about when you pay for ads. With paid search, you can choose to run your ads only during the times when they will help your business.

Search engines work on an auction basis, so whoever bids the highest gets the best position on the page. The minimum bid amount to display your ads varies a lot, and depends mostly on the competition for any given keyword. A good place to start is to think about the maximum you would be willing to pay for a click, and then using Google's Traffic Estimator to determine what the average cost per click (CPC) for your terms might be. You are hoping the projected average CPC is lower than what you are willing to pay.

Now you're ready to set your campaign live. You will want to monitor it closely for the first couple of days to make sure everything is going as you expected. Then after a week or two, once you have a decent amount of volume, you should take a look at the campaign to see which keywords and ads are working effectively, and which ones are not producing for you.

This should get you started with the basics. I am always happy to help out if you should have any questions.

Why Businesses Need to Advertise on Search Engines

If you own or work for a business that is not taking advantage of search engines to reach potential customers, you need to read this. The opportunity is enormous and it is only going to get bigger. Name someone who doesn't use search engines to find what they need online. That's right...you can't do it. Google alone receives well over 400 million searches every day(the exact number varies depending who you ask). As a business, you can't afford not to get some of this action.

So what's the big deal with search engines? For starters, they represent the most targeted marketing opportunity you are ever going to find. Forget about wasting money on TV, print, or even online display media. With those channels, the best you can do is target your key demographics, but even then you end up serving your ads to plenty of people who have no likelihood of ever becoming customers. What's worse is you are trying to get their attention while they are watching TV or reading a magazine. They could care less about what you are trying to sell. On the other hand, advertising on a search engine allows you to serve your ads only to people who are searching for terms related to your products, and you are reaching them at exactly the moment they are interested.

I haven't even mentioned the best part yet - if no one clicks on your ads, you don't pay a dime. Advertising on search engines is typically done on a cost per click basis, meaning you only pay when someone clicks on your ad and is sent to your website. Yet another reason why search advertising is so much more efficient than any other channel.

The ability to measure and optimize everything about your campaigns is one more aspect of search engine marketing that businesses love. When you advertise on TV or in print, you know how much you spent, but it is very difficult to know how effective it was. This is something advertisers have always struggled with. When you advertise on search engines, you get data on how many people saw your ad, how many people clicked through to your website, and you can even see how many people performed a desired action on your site (and in the case of E-commerce, how much they spent)! With all of this information, it is very easy to calculate whether your campaign has been worth the costs, and even to see which of the keywords you are bidding on are worth your continued ad dollars.

To make it easier for businesses to attract customers, Google offers tools to help you identify keyword opportunities that you may have overlooked. They even help you project out the potential audience size based on the keywords that are related to your business. To further entice people, Google is almost always running promotions to give you some free money to work with to get your account started.

As you can tell, I think the creation of search engines is the best thing to happen to advertising since the written word. But don't take my word for it. Try it out for yourself. You won't regret it.

Diagnose Your SiteCatalyst Problems

Here is the situation: someone on your team (in the best case it was you, in the worst case it was a client) has noticed that your SiteCatalyst data doesn't make sense. Your main campaign isn't showing any traffic, or your conversion rates have gone down the toilet. Either way, you are now flying blind without the data to inform your marketing efforts. So, how do you figure out what went wrong?

Demonstrating competence in troubleshooting these types of data issues is one of the quickest ways to establish credibility and expertise as an Analyst, but it is something that I have repeatedly seen younger practitioners struggle with. They are fluent in the reporting interface, and have mastered the art of slicing and dicing the data, but when it comes to diagnosing these technical issues, they just don't know where to begin.

I am a big advocate of formal training for our Analysts, so we recently held a seminar to walk through the steps needed to identify the root cause of SiteCatalyst data problems. There are two things that came out of this training that are worth sharing. The first is the case study method that was used. It made the material relevant, fun, and forced our Analysts to find the solution on their own rather than simply sit through a presentation. This is a great format for managers who are trying to educate their teams. The second is the step by step SiteCatalyst troubleshooting guide that was created as a takeaway from the training. This is a handy cheat sheet for all Analysts to follow as they encounter similar issues.

The Case Study Method:

We used a current example from one of our largest clients to make the training feel relevant.

Instead of giving another boring presentation, we guided our Analysts through the process, and forced them to come to a solution on their own, as a team.

We started with the actual email from a member of our Paid Search team that initially brought the problem to our attention. Each of the Analysts was asked to make a list of potential causes, and then we went around the room sharing ideas. We then used multiple data sources, debugger outputs, and source code screenshots to investigate the issues one by one. When it finally came time to reach out to the client, we discussed in depth everything that needed to be included in that email (the things we had already investigated, when the problem first appeared, what we thought the likely causes could have been, and what information we were hoping to obtain from them).

The Analysts were very engaged, took turns driving the conversation, and gave extremely positive feedback on the training. Most importantly, I have noticed a major improvement in their abilities since we held the training. I would highly recommend this method be used as Managers look for ways to build out the skill set of their teams.


Guide to Diagnosing SiteCatalyst Data Issues

Step 1: Find out what the problem is/if there is a problem

A lot of times, members of our teams come to us with "data errors", but they have just misinterpreted what they are seeing or have pulled the data incorrectly. Make sure you are clear on their assumptions and think critically about whether or not an issue truly exists.

Step 2: When did the problem begin?

Once we have determined there is a problem, the first thing we usually do is look at a trended view of the data to see when things started to go wrong. This will tell us whether the issue has always been present, or if there is a date where something changed. If we can isolate a date, we can then check to see what changes were made to our site or our campaigns that could have caused it.

Step 3: Identify the scope of the issue

Is this isolated to a specific campaign/page, or is this a site-wide issue? If we find that the issue is site-wide, it is likely an issue with the SiteCatalyst s_code, so that is a good place to look. If it is isolated to a page or campaign, then you should investigate changes made locally on the page or to the trafficking of the campaigns.

Step 4A: Check the landing page (for page-specific issues only)

Does the landing page have SiteCatalyst code? Does it look correct? Does a debugger pick up the tracking you would expect to see, including campaign codes? Does the page functionality work? (sometimes it is a functionality issue rather than a tracking issue).

Step 4B: Check the campaigns (for campaign issues only)

Are the campaigns trafficked with proper codes appended to the URLs? Is there a question mark after the destination URL and before the tracking code(good)? Are there two question marks (not good)?

Step 5: Find out what changed

Now that you have identified when your problem occurred, and what the likely sources of the problem are, you can involve other parties to understand what changes were made and how they can be fixed. Bring in your technical or web development team for s_code or page issues, and bring in your media teams for campaign related problems.



That's that. Hope you've found it helpful!