There was a post the other day from Matt Umbro – Why SMBs Should not Run Adwords Accounts, which you can read for yourself. For the purposes of his post and mine, the adspends we are discussing are under $500. We can debate the definition of an SMB another day, but the topic today is – should SMBs run Adwords accounts with spends of $500 (or lower).
Matt’s answer is no (with rare exception). My answer is yes, it can work more often than you think. As usual in PPC discussions, it always boils down to “it depends.” And the same applies here, but I am making the statement that in a lot of situations, it can work…if done right.
When It Works
Small Geo-Location – with a $500 budget, you’ll be hard-pressed to target the US, or even Pennsylvania. Heck even Philadelphia (shameless plug for Hero Conference Philly in April). But if you are a driving school looking for students within a 10 mile radius in Bucks County (Philly Suburb), you can do well with $10 per day.
In this case, a conversion is anyone who signs up through the online form on his website. And he does get calls as well, so the ROI is a little better when you factor in the phone leads. For a guy who can only handle so many students, this is a solid campaign with an accommodating budget for his area and his capacity…
Capacity – Some SMBs (or Micro B’s if you will) can only handle so much business at a time. I’ve had situations where clients will pause campaigns until they can catch up on orders and/or quotes. We have a mobile paper shredding SMB. They have only one truck and want to generate enough recurring clients to make a second truck profitable…
As you can see, on a $500 adspend, they did fairly well. Could they spend more? Yes. The CPCs in this case aren’t that low, so they don’t get a lot of traffic, but because the campaign is focused on specific terms it fits their situation. And that is a nice segue to…
Niche Terms – As many PPC’ers know, broad terms can have a place, but can also be a major killer. However, if you have a limited budget, it’s a deal-breaker. You have to be as specific as possible in order to maximize conversions. With a small budget, traffic is usually not an issue, but conversion is everything. And without a huge budget for CRO or major web dev/des (I can almost see Matt Umbro nodding his head from here), a lot of that falls on the PPC strategy and most notably the keyword strategy (apologies to the ads). So keyword selection is…well, key.
For example, I didn’t know there was much difference between an Interior Decorator and Interior Designer. But after my first Interior Decorator client educated me, we made a choice to avoid interior designer terms since people who searched interior decorator keywords were a better fit for her services. Interior designer gets a lot more search volume…
But with a limited budget, volume was not the goal; conversions business was. So while this isn’t the most-niche industry I’ve worked in, it illustrates that small budgets can work with very specific terms – lice removal, solar powered pool heaters, and medical malpractice insurance to name a few.
Small CPCs – Some industries have low CPC’s, which is nice from a PPC-manager-perspective, because you can do a lot more with a smaller budget. For example, we have a bakery that wants to increase its custom cake business. In this particular campaign, we have a $350 per month budget and as you can see, we are not “limited by budget.” The goal of this campaign is to target people to place online custom cake orders. Shower cakes, wedding cakes, logo cakes, etc…
While this falls under the niche-term scenario as well (and small geo), the cost per click is below $1, so for their $337.86 adspend, we have almost 400 visitors. And for that low spend and “decent” volume we are generating a positive ROI with 15 online orders (not including phone orders as well).
So when you have low CPCs, the volume, even on a small budget, can give you some nice data to sink your teeth into (like a cake) and help optimize an SMB campaign even faster.
High Profit Margin – When running a small budget campaign, you’ll have more chance of success if the end product has a high profit margin. Let’s use a painter as an example. I’ve seen the average job size range anywhere from $3,000 to $12,000 (depending on interior, exterior, commercial, etc). So if the average job size is $4,000 for a particular painting business, then on a $500 per spend per month, it only takes one job to cover a month or two of adspend. Once you factor out costs/margins, anything over is profitable.
Think of it this way. You spend $500, generate 10 leads, which is a $50 CPL. If your conversion rate is 10% from lead to sale, and your job size is $4000, then you most likely win. You can move these numbers around to make a case for or against this example, and I know every case is different. But it is at least a starting point to measure the success of an SMB campaign or a discussion to have with the client.
As a quick aside, you’d be amazed how the above example leads to a question of “why is my conversion rate from lead to sale X%”. Then it leads to improving customer service, sales techniques, quote process, etc. So this data has even more value to the client. I’ll talk more about the value of data later.
Lead Gen vs Ecommerce – I will say this: In my experience, SMB campaigns work better in the Lead-gen world vs Ecommerce. The ROI seems to be higher, and the revenue on the service vs a product is typically higher, as well. Not that a small budget can’t work for a PLA or ecommerce search campaign. But I’ll agree more with Matt’s post on the shopping side than on the lead-gen side. Again, it goes back to profit-margin, but I’ve had more success with sub-$500 budgets on the lead-gen side.
That said if the product is niche and you can’t get it from a major online retailer or large brick and mortar chain, your chances are stronger, but it will still be a challenge, especially with PLA campaigns which are no easy feat even for PPC veterans.
Seasonality – In some cases, a $500/month PPC budget can even be too much for an off-season month. I have a fence client who spends 10% of his normal budget in December. Between the holidays and the cold weather, not many are in the market for a new vinyl fence. So while you may get an inquiry or two, the spend will be small. Which is fine, as long as the cost per acquisition is within your target.
New Businesses – “We’re a scrappy little startup.” “We just spent all of our marketing funds on the new website.” “We’re starting a side business.” Yup, I’ve heard variations of all three of these and more. In these cases, they rarely have over $500 to spend on PPC, so they have to start somewhere. And if you and the client are willing to be patient and test, then I’d actually recommend a small budget until you learn some things. The pressure is typically higher in this scenario, so it’s not the ideal situation.
I was almost hesitant to include it, but if you have nothing to work with, you don’t want to see the SMB go blow the bank with a large spend and learn the hard way. I’d rather learn on the cheap and try to find something that works. Again, there is value in the data and in some cases like this, a small PPC budget might be the better way to go (I use might very loosely).
The PPC Manager – Some of the arguments made on Twitter about the value of an SMB PPC campaign related to the manager and more specifically the time. Time has value, which equates to money. So whether the person is in-house and his time is better spent on other parts of the business or the agency who charges for that time, the actual manager will have an impact on whether a small budget will work.
Managing a small business campaign will take time – more time than you think. On top of the work itself, it’s the management of the client – their lack of familiarity with search engines, their expectations, sometimes impatience, and overall education. So as the manager of the campaign, you have to have patience or it won’t work. You may be saying the same thing over and over until people understand the strategy and logic. You may have to answer emails and calls, many emails and calls. Did I say many 🙂 So if that is not a strong suit of the PPC manager, then it could be doomed from the get-go.
To that end, the PPC manager is going to have to over-deliver in the beginning. Not just on immediate results, but on time. So I can see why some agencies avoid this potential client, as the fee will not justify the time, at least for the first month, if not a few months. I’ve made a decision to accept that, which I will mention later in this post, but that strategy is not for every agency or manager. And if you don’t have a manager with that acceptance, it may not work.
To that point, setup and structure will be key. Not just for the success of the campaign, but for the efficiency of the manager’s time. I’d rather take the extra time to develop a sound structure, which will make it easier for me to manage the campaign in the long run and…save me time. Yes, it may make me less profitable as an agency in the beginning months (which is risky if the client cancels), but I’ll take the risk if I believe my setup will:
- Generate faster success
- Keep the client long-term with early results
- Save me time in the long run.
Not everyone will agree with this logic, but so far it works for us.
Experience is a big factor as well. I will make this statement: Of all my colleagues who I know and respect in the paid search world (most of whom are in PPCchat), I would bet good money they could roll out a PPC campaign with a $500 budget and have success in the situations above in a very reasonable time-frame, if not right away. And the reason I am making that statement – experience will save time. They already have processes in place they use for large clients. They have a good feel where to prioritize time to have more impact, what not to do, where to play defense (eg- negative keywords). Those factors make you more time-efficient, which makes you more “fee-efficient.” So an unskilled or rookie (for lack of a better term) PPC manager may not be the right fit to have success with a small PPC campaign, until they have more experience.
When It Doesn’t
So while there are some situations where a very small PPC budget can perform well, there are definitely situations where you don’t have an Eagle’s chance in hell of winning a Superbowl (yeah, I went there)….
High Competition – If you are in a major metro (New York), a high CPC industry (Injury Law), or a highly competitive industry (insurance), you may have a real struggle or lack of results with only $500. In those cases, I agree with Matt 100%.
Low Revenues and Profit Margins – If profit margins are razor thin or if your product or service is low revenue, the cost per acquisition may be rough, and you’ll blow through $500 before you can get to a strong ROI. I’m not saying it could never work, but I’m with Matt on this one, more (most) often than not, you won’t get there.
New Businesses and Startups – If your total budget is $500 for a month and you don’t have enough funds to get past that first month, you may be setting yourself up for failure. While small budgets can work, they do take time to optimize and sometimes new business don’t have the patience. Each situation is unique, so this scenario is hard to judge. But if you made me give an answer I’d be closer to agreeing with Matt on this one.
The Right Manager – Big or small, you have to respect PPC. I’m biased of course, but I’ve seen a lot of agencies not respecting its value or importance and that’s when it fails. If you are slapping together multiple campaigns with broad terms, with minimal management and charging a fee, your churn rate will be high and you’ll actually have more cost in paying sales people to replace that revenue.
And not only that, but if this is a client who has multiple services through your agency (social, seo, etc), its failure could lead to loss of those revenues as well. A dissatisfied client will leave, and then you lose revenue from other departments. We actually have SEO firms outsourcing their SMB PPC to us because they value client retention and its impact on the bottom line.
So you need to have someone who can handle a PPC account, especially a SMB PPC account. Just because its small doesn’t mean it’s easy. Trust me. And if the manager is not passionate, patient, eager or efficient, it’s not going to work out well.
Pros
You will grow with the campaign – once you prove success, the client will be more willing to spend more. The budget increase will allow you to do more, and you will grow with the client as well, which leads to…
More business from the client – With PPC success comes more channels – video, remarketing, paid social, etc. So again, you can grow with the client. The best feeling in the world is when the client says, “what else can you do?”
Small success can be a big win – As I mentioned, one sale could really help the SMB. If their training program is $5,000 for the year, one early sale opens some doors for an SMB. The cash flow alone can be a large boon that allows them to spend more, and covers advertising costs for a few months. If one sale per month is break-even, then everything else is profit.
Immediate Impact – More than any other channel, you’ll have faster results (if you get it to work). SEO takes time, radio and TV need frequency, email has open rate concerns, social media takes more exposure, banner ad CTRs are low; but with paid search, you’ll most likely get some action the first day you launch the campaign.
Quality of Channel – Nothing wrong with email, social, direct mail, etc. But search is where people are looking for you. So if $500 is your only budget, I think the quality of search traffic has a higher chance to convert than a direct mail drop. You can argue SEO vs PPC in this case, but I’ll at least agree that any search would be the better value for your $500.
Data – I don’t want to put too much emphasis on this because to a SMB, $500 is a LOT of money. So the goal of that $500 is typically to directly drive more business. And I agree. But, the data from PPC is sometimes so much more valuable than they realize. For example…
“Wait, 10 people typed in transmission repair in eagleville went to my site and didn’t call or fill out our schedule form? Why not, we’re the only guys in town?”
Then it leads to conversations about their site, their pricing, their content, mobile vs desktop. And once you get into phone tracking, it amazes them that the front desk or call center could be an issue. Or even themselves. I had to tell one owner to let someone else answer the phones. So the data can sometimes open eyes about the business.
And it can help other channels as well. The SEO may want optimize for one term, but you can give him/her actual data that supports a better term. The search query report itself is a goldmine for content. What’s the best call to action for an email campaign? What promotions work best for a newspaper ad, etc. So there is value in the data itself, and maybe have even more of an impact for an SMB.
Referrals – There are more SMBs than large businesses, which means the potential client pool is large. And the SMBs really tend to refer you as if they have this amazing secret – it was a dark and lonely night, “I know a guy”, he whispered in the back alley under the brim of his fedora.
Red Tape – If you sell red tape or anything with a small SMB account, you most likely don’t have to deal with compliance, politics, approval processes, etc. You typically have more agility and authority to quickly make adjustments without 30 chefs in the kitchen, which allows you to optimize on the fly and hopefully improve results.
Scalability – You get a small budget for a nursing home. You make it to work. It took you a lot of time and effort, but you figured it out. Client is happy, budget is increased, and he’s a great referral. Imagine if another nursing home came along in a non-competing area. How much work is already done for you? That’s where this model really works. If you can target the same industry across multiple areas, you’ll win on the time-efficiency factor. It’s a risk for the first one, I’ll admit that, but in the long run, you’ve created a scalable model for this industry that can be profitable by making this one $500 budget work.
Challenge Accepted – I’ll be honest. A big part of getting the $500 budget to work is my ego. I want to prove that I can do it. And it’s one of the most satisfying things about my career. To have someone give me a chance with their hard-earned $500 (which is a lot to a lady working from her house or a mom-and-pop shop that’s been in my neighborhood for years) and see me make it work for their business. And if that doesn’t drive you, then this is a con. But to me it’s a major pro. I just really enjoy being challenged (ergo this post)
Cons
That all sounds great, right? Well there are cons as well.
Time, Time, Time – see what’s become of me. The hardest part about working with SMBs is the time spent on client management. Phone calls that are just a quick question turn into hour-long conversations. An email with one question turns into a trail of follow-ups. Late nights, early mornings, impromptu meetings, all come with the territory. And every client has a brother-in-law who knows a little bit about search, so you get questioned at every turn. Education, diffusion of misinformation. It does abate over time as you build trust, and it’s always more involved in the beginning, but if you can accept it, then it can work. But time-spent can be a con to the hourly model.
Many Clients – If you work on large accounts, you don’t have many clients and maybe only a few points of contact, but ample revenue from those clients. In order for an SMB agency to have similar revenue, you need to have many clients. And that means more points of contact, which means more customer service reports, emails, calls, etc. So it’s not perfect.
And it’s more so on the client-management side than the campaign-management side. If you handle one $10,000 account with 20 campaigns, the work on that account might be the same as 20 accounts in the same vertical in 20 different locations (as I alluded to above in the scalability section). The difference is that the large account probably reports/interacts with one person. The individual accounts have 20 different points of contact.
Risk – I may be wrong, but I feel SMBs are a higher risk to quit early if they don’t see immediate results, where a large company will have the luxury of seeing at least 6-12 months before they make any rash decisions. So if the model is to over-deliver early and the client cancels in under 3 months, it won’t math from a profit standpoint.
Web design and Development (CRO) – If the budget is small, there usually isn’t an intensely-designed website behind it. Not that all SMB websites are bad, but again, most of the success is going to fall on the campaign not the website (at least at this point). In my mind, I always flash back to the scene in the original Batman movie where Jack Nicholson asks for the mirror after the doctor tries to fix his face. “Look what I had to work with!”…
Yes, you can probably get in there if it’s on a CMS like WordPress or some of those out-of-the-box platforms where you can inject calls-to-action, tracking code, etc, but you’ll be challenged and there won’t be budget for CRO, landing page tests (or software), new design, etc. So pressure will be on the campaign.
Tracking – In most cases, they won’t have it or will have it but won’t have logins. Or multiple logins, or the old agency will have the master login. Or things you probably haven’t even heard of yet. That will be a challenge (and more time spent), but things like Tag Manager have at least helped.
Fees
There are many different PPC pricing models and everyone has different opinions, so I don’t want to debate that. However, I do feel like a lot of pushback has been that the fee for a $500 adspend doesn’t justify the return. So let’s get into that.
If the adspend is $500, then how much should go to the fee? You can do that one of two ways. The fee is part of the $500 or on top of the $500. We prefer to separate the two for one important reason – transparency. I’ve run into a few agencies where the fee structure is muddled. Not sure what goes to spend vs fee. Yuck! We make it very clear. Google will bill your card for the spend. We will invoice for the fee.
However, regardless of your structure, let’s talk about the fee on top of the $500 spend for this example. I think an average agency fee is about 15%. So on that $500 you’re looking at about $75. If you charged $225, then that is more fair to the agency, but it’s almost 50% of the spend. So the client could argue that’s too high.
But if you go with $75 and you’re using an hourly pricing model, then how many hours of work on a campaign are you going to do for $75?
Now, one solution is a one-time setup fee, which solves a lot of these issues. And it concurs with my point about upfront work. This helps the client get value, but not have a large, ongoing retainer for a small budget.
The other and less-popular solution is to lock the client for a long-term contract. Then charge upfront for the year’s retainer and use that fee to do the bulk of the work early. I’m not a fan, but I’ve seen it done.
I like to work somewhere in the middle. If the budget is small, I may go a little higher than the $75 to get some just compensation and as the account grows (which is the long-term goal) the margin will decrease from a client perspective. The risk I run (since I don’t force contracts) is that client cancels and I lose all of the extra time I put into that upfront work. So it’s not perfect. But here is why I am willing to take that risk:
- I believe we will get it to work more often than not.
- I believe we will retain that client, grow that client, work with that client on other services, and get other referrals and business from that client.
- I believe that the campaign and its data will help the other channels we service for the client – synergy.
- And I feel the value of the cost of that adspend and our fee will be outweighed by the new business we can generate for the client.
I’ve even seen instances where it didn’t work out (nothing is automatic), but sometimes those clients still refer others to me. Why? Because while they didn’t get the ROI from the spend, they understood we did everything we could. And now they know it’s not the right channel and don’t have to keep trying it with other agencies and waste money. And sometimes that has value as well.
And the way you can work the fee structure is to grow your fee with the growth of the adspend, using a percentage of adspend fee structure. This is not perfect in all scenarios. One can argue your motivation is to spend more money, not convert. But I disagree, as conversions = client retention, increased adspend does not. So my motivation is always increased business for the client. But to alleviate that concern, you can cap that percentage at a certain adspend level.
So far, I have built my agency on taking that risk and it’s working out well. I’m not going to lie, it’s a unique and risky model, but we got here on this model. Maybe we’re not the most profitable agency in the world, but we make it work. I enjoy my flexibility with the hours, my work-life balance is skewed towards work (who’s isn’t), but I still enjoy my family and the satisfaction of working with SMBs…like myself.
Bottom line, SMB PPC management is not for everyone, but it is for me/us and we enjoy it. And that’s a big part of it.
So to wrap this all up, the statement should not be “SMBs Should not Run Adwords Accounts.” I think it’s “You’d be surprised how often SMBs can get Adwords to work, if they do it right.”
March 28, 2016