Study Finds Small Businesses Waste 25 Percent Of Their PPC Budgets

While pay-per-click marketing has become an integral part of many small businesses’ marketing plans, most SMBs struggle to find the time and resources to manage their PPC campaigns. A new study finds that, due to managerial and strategic errors, SMBs inadvertently waste a quarter of their paid search budgets.

Paid search software firm, WordStream, conducted the study by reviewing the accounts of 500 small and mid-sized business clients who manage their own AdWords accounts. WordStream found that less than half of the businesses have conversion tracking installed on their landing pages. A large portion the accounts are running campaigns to generate leads or phone inquiries, yet 95 percent of the accounts don’t have call extensions set up.

According to WordStream, the 25 percent spend inefficiency is primarily the result of SMBs not actively managing their paid search campaigns. WordStream quantified the impact of limited campaign management in several of the client industries represented: 126 lost insurance quotes;  367 lost bed and breakfast inquiries; 569 lost product sales for retailers; 157 lost B2B supplier leads.
I asked Larry Kim, WordStream founder and CTO, for his thoughts on the particular challenges SMBs face in PPC and how they can get more active in managing their campaigns.
GM Why do you think it’s hard for SMBs to manage their paid search accounts — too confusing; hard to know where to focus; it’s “that thing” that runs on auto-pilot and does more than if it weren’t running at all? 

LK Small business owners struggle with a general lack of time at baseline, and keeping up with all of the changes in AdWords is practically a full time job. Furthermore, they lack context – even if they understand the basic features and functions in AdWords, it’s hard for them to know if their ad performance is any good or not, and thus not be aware, for example, how much better they could be doing.
GM What do SMBs need to be thinking about when budgeting for PPC campaigns?

LK  The two most common ways SMBs think about PPC budgets are:

a)  Cost per lead relative to other channels: This assumes a fixed marketing budget and the goal is simply to get the most for the available marketing budget. In which case, the business can spend more and more on PPC up until the point it costs less than or equal to the cost of generating leads through other channels (eg: Groupon, Yellow Pages, etc.)

b) Cost per lead relative to average value per lead: This involves doing some research and figuring out how many leads on average it takes to generate a sale, then figuring the value of an average sale and what you’re able to pay for a lead. You then try to get as many leads as you can for less than or equal to the target cost per lead.

Most SMBs we talk to are limited by budget – they’re spending just over $1k per month on average, and given that Google serves billions of searches a day, there are usually many more queries and clicks out there than they can afford. So usually, I find that SMBs should try to be as picky as possible (bid on very specific keywords, use negative keywords, etc.) and only pay for “VIP keywords” – keywords that are strategically important to the business.

GM When SMBs are really struggling and need to refocus, it can be hard to know where to prioritize their efforts. Where should they start?

LK Generally there’s an 80/20 rule in which one or two campaigns amount for the lion’s share of clicks and conversions. I’d follow the money, and direct the top five optimization efforts we outline  on the top ad, or top campaign in the account, then work your way down. Set up a workflow wherein you spend a few minutes every week or two analyzing and optimizing your campaigns. Slow and steady wins the race — the reality is the bar is quite low — most small business PPC accounts aren’t that great, and a little bit of insight and effort can go a long way.

WordStream suggests businesses start by allocating even a small amount of time a week in campaign management, which should include: identifying the best (typically long-tail) keywords for your business and make good use of keyword match types and negative keywords; writing and testing relevant ad copy to achieve lower cost-per-click and lower cost-per-action; test and optimize PPC-specific landing pages (with conversion tracking installed); set up mobile preferred ads and be sure call extensions are set up to capture active inquiries.