Review: The Economics of Local Search Advertising Webcast
This week SEMPO held a webcast that focused on The Economics of Local Search Advertising. The primary subject matter of the event was a new research report from Borrell Associates that examines the “challenges and opportunities around the $5.3 billion local search advertising industry.” Gordon Borrell led the webcast and gave his personal insights on his firm’s findings.
Below, I’ve included important PowerPoint slides along with some observations from the webcast.
Key Findings:
Interactive media advertising cannot and will not grow forever.
A regular problem with small business is that they don’t want to spend much, have high demands and unfortunately are not very good about paying their bills.
There is currently massive churn in Local Search Advertising. Based off of Borrell’s findings the average situations is that if a Local Search Firm sold 12,000 accounts in a given year they would likely finish the year with 247 total active accounts! Key factors of the high churn rate include: Local Search is oversold. On top of that not enough of the client’s money is going to buying PPC. Finally, dealing with small businesses is proportionately far too time-consuming—they need a lot of hand holding, even on small buys. (See Slide 14)
Typically, the lower the spend the less money is spent on actual keywords buys—a lot of the money goes towards commissions and overhead. (Slide 15)
Firms that use Search Engine Marketing Management Software see lower churn rate. Sophisticated software helps make management of PPC much easier and more consistent. (Slide 16)
There is a direct correlation between the amount spent on ad buys and the amount of churn—the more money spent on ad buys the lower the churn, the more spent on commissions and overhead the higher the churn. (Slide 17)
Studies have shown that actually increasing percentage of spend on ad buys not only delivers better results for the client, but it also delivers higher profits over time for the Local Search Marketing Firm.
Most small advertisers have the nagging feeling that half the advertising they are doing is working and half of it is not, the only trouble is that they’re not sure which half is the one that is working (Borell calls that the John Wannamaker Syndrome). That means that they are vulnerable to being persuaded either towards or away from different types of advertising. At the end of the day, Local Advertising is based off of trust; if you can convince them to trust you they will buy, but your service damn well better perform.
Many local advertisers have not yet tried Local Search Marketing, however many of them are constantly getting contacted by local search advertisers (some times as much as once per week!). That means that perhaps Local Search Advertising Businesses have NOT yet found the right pitch. There is an opportunity for search businesses if they can find a simple pitch that hits the right nerve.
Local Search Advertisers need to understand the sorts of questions their small business clients will have—they’ll want to know how much money will be spent on what, they will want guaranteed results and they will want a monthly report that they can understand (not just a Google Analytics report with a different logo).
A lot of PPC people out there don’t know what they’re doing, so the caveat here is that increasing ad buy spend may not get performance as high as it needs to be. Spending more money inefficiently won’t get you any further. You have to have both—high percentage of overall money going to ad buys and talented people managing the campaigns. Also, talent may not be enough; they need to use sophisticated tools.
This means that the perfect situation is one where you have a high percentage of client spend dedicated to ad buys (60% minimum, and 65% is better!), along with experienced and talented analysts managing these accounts with the help of sophisticated Search Engine Marketing Management Software.
A regular question Borrell gets, given the tremendous amount of churn he talks about, is:
How many times will small businesses fail the first time around, but retry local search at a later date?
His answer: The fact is that there is currently no strongly conclusive data here, but based off of some recent research the belief is that many of them will come back. One of the reasons is that not all churn is due to people being unsatisfied—some people only pursue seasonable campaigns; others have like to run tests and then evaluate the results over a period of time before deciding whether to re-engage.
One last thought from Borrell: Local Advertising is Sold, not Bought—SMBs need to be pursued, and the right pitch along with a tight system that produces results will win them and keep them happy.
Remember: BlitzLocal devotes 70% of the client’s spend towards Ad Buys and we have talented PPC professionals running the campaigns! Use BlitzLocal for a competitive advantage!
