August 04, 2004

Special Report: 3,007 Marketers Reveal Search Marketing Costs, Clicks, & Conversion Results

SUMMARY: No summary available.
The biggest surprise in MarketingSherpa's 2004 Search Marketing Survey results was that neither marketers nor their agencies voted any type of search campaign to be "very effective."

A $3.78 billion ad tactic (our estimate SEO plus paid search costs) mushrooms out of nowhere in just a handful of years, and it's not "very effective"?! Here's the breakdown of what folks actively using each tactic thought of their results:

Very Good Somewhat Not Good BAD
Optimization 31% 50% 14% 5%
Paid Ads 34% 47% 12% 6%
Paid Inclusion 18% 51% 23% 8%

As you can see, "somewhat effective" won out every time. Perhaps we shouldn't have been startled, because this search-is-moderately-effective trend has shown up on every survey we've conducted to marketers of all varieties (b-to-b, online ad specialists, Google experts, etc.) for the past two years.

Why? Well, our guess is a combination of factors, including:
- PPC click costs are rising
- SEM newbies are flooding the field with inept campaigns
- Search algorithm changes make consistent SEO results hard
- Increasing results page clutter
- Competition

Search marketing costs and budgeting data

Despite only getting somewhat effective results, the average marketer using search reported that they were spending 15% of their total budget (that's online plus offline) on SEM for 2004.

Predictably the b-to-c brand marketers were spending the least at 6% of total budget, while the eretailers were spending the most at 24%. This latter figure alarmed us a bit, because when a quarter of your budget is targeted to just one media, any changes can really disrupt your sales. A handful of search and shopping engines have an extraordinary amount of power over thousands of ecommerce sites' fates right now.

On the paid search cost per click front, the results were clear: anybody who refers to average CPCs of fewer than 50 cents is either living in a dream world, or not conducting campaigns as aggressively as the vast majority of their peers.

At an average of 30 cents per click, content site marketers were the only folks to go under the magic 50. This makes sense because publishers are notoriously tightfisted about marketing, and most rely on ad sales, so converting that search eyeball to significant revenues is harder than you think.

Business-to-business marketers were paying the most per click - averaging $1.69 for product marketing and $1.75 for service marketers. Makes sense, b-to-b prospect pools are much smaller than mass marketing, and the competition bids the price up quickly. Of any demographic, b-to-b marketers have the most to fear from click fraud.

SEO is more wonderful than we expected

Strange -- although respondents using it didn't overwhelmingly vote search engine optimization as a "very effective" tactic, they did say their site traffic from organic clicks increased an average of 73% in the six months after optimization.

A 73% increase and you guys don't think SEO is very effective?

We thought, "Well maybe organic clicks convert at such a lousy rate the traffic isn't worth it." And indeed, we've heard anecdotal evidence to support that theory from marketers we've interviewed for past Case Studies.

Survey results revealed that much depends on what your target demographic is and what your conversion action is. So, b-to-b marketers seeking lead generation wound up with 7.6% conversions from paid search versus 6.7% conversions from organic clicks. On the other hand, b-to-c ecommerce sites with an average sale of $51-100 converted 4.8% of paid search clicks to buyers versus 6.5% of organic clicks.

Landing pages -- depressing news on best practices

Somebody's going to have to give our Publisher oxygen, because she is gasping with appalled disbelief.

In Case Study after Case Study for the past five years, we've brought you clear, irrefutable evidence that specialized landing pages *without* regular site navigation get the highest conversion rates. Marketers who send traffic to their regular home page get pitiful conversion rates. Folks who deeplink but leave standard navigation are usually somewhere in the middle.

So, we were thrilled when our May 2003 survey of 406 marketers actively using Google AdWords showed that 62.6% of respondents were using specialized landing pages. Plus, 75% of the folks using special pages got a significantly higher conversion rate than folks sending traffic to a regular site page.

However, our new July 2004 survey clearly shows the paid search trend is toward... stupider marketing. Here are the numbers for paid search campaigns:

Marketers using specialized landing pages - 42%
Marketers using deeplinking - 32%
Marketers sending to a home page - 26%

We guess the 2003 folks were early adopters, and now that masses have invaded paid search marketing the quality of campaign will go down. OK, that's mean. But, these results were very depressing.

If you're paying for a click, and then you send it to a page that doesn't convert well, you're leaving money on the table. No wonder folks are complaining that search is only "somewhat effective"!

Are search agencies and consultants worth the extra cost?

Search marketing has been around for 10 years now, and for the vast majority of that time marketers have conducted their campaigns in-house. In fact, of our respondents on the client-side (versus agency-side), 76% using SEO did it in-house and 66% using paid search ads did it in-house.

We wondered, do specialist agencies and consultants do so much of a better job than in-house efforts that you should consider handing the job over to them?

Turns out the answer may be "Yes." (And no, we don't take ads from agencies, so nobody paid us to conclude that.)

As you might expect, agencies are more likely to track campaign metrics extremely closely than busy marketers are. As a result, they wind up bidding slightly more aggressively than do-it-yourselfers ($1.28 per click versus $1.19 per click.)

The extra bidding pays off. Agencies get significantly higher average click rates (3.4% versus 2.8%) and higher conversion rates for paid search (6.8% versus 5.4%). When it comes to organic, agencies get slightly lower conversion rates (6.1% versus 5.8%) which makes sense because they control link depth but not site design.

Is hiring an agency worth it to you? You'll need to run your own numbers, estimating additional sales and conversions, minus in-house salary costs, plus agency costs. Good luck and let us know how it goes.

Thanks to everyone who helped with the 2004 survey -- we would be nowhere without you!

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