As search marketers, we often talk about the same metrics over and over – CPA/CPL, ROI/ROAS, etc. No matter what vertical we’re working in, most of our optimizations are based on a “cost per” or “return on” model. I say “most,” because more and more search is being used for softer metrics like user engagement.
Primarily, SEM has proven to be an effective direct response tool with standard direct response goals. But what’s behind these metrics?
Is a lead just a lead? Is a 5:1 return on ad spend the same across my entire product catalog?
The answer to both questions is most often a resounding no, yet many search marketers still manage their accounts as if it’s yes.
Don’t Marginalize Your Sales
Retailers know that the gross margin for items can vary significantly. Selling a $50 watch may net $10 in profit, while a $50 tie may only net $5 in margin. Optimizing to a basic return on ad spend (ROAS) could mean cutting your own margin.
Salespeople in a store typically know this and are able to steer customers to higher margin merchandise. While on-site optimization may be one way to do something similar online, a more SEM-friendly approach is to simply optimize to gross margin.
This can be achieved a couple of ways:
- Ideally, you have access to the gross margin for each individual SKU. You may or may not want to populate that into your action pixel, but it can be safely and securely provided through an API back to your SEM platform. By updating your online sales data with gross margin amounts, you can easily optimize to a more refined ROAS that removes variances in margin from the equation.
- A lower-effort way is to simply understand how margins differ by categories. If margins on watches are typically twice the margins on ties, you can optimize to a different ROAS target for each. This helps even out the inequalities in margin by category. It’s not as precise updating actions with SKU-level gross margin, but it can very effective with a lot less effort. To do this effectively, it’s also important to bring in SKU level data with each online action so you can account for keywords that lead to sales in more than one category.
Not All Actions are Created Equal
If you’re in the business of generating leads online and then having them convert offline, you may be stuck optimizing to cost per lead (CPL) and putting your faith in your call center to close the deal. This can be very inefficient, as you increase spend for keywords and ads that generate requests but not revenue.
Updating your SEM platform with offline conversion data is critical. This can typically be done through a simple API integration which takes data straight from your customer relationship management (CRM) system and either updates leads to sales or adds in a separate action type, all tied back to the keyword and creative that generated the lead in the first place.
Another solution is to assign either weights or revenue amounts to different action types. If CRM data shows that a “Request A Quote” lead generally is worth double an “Email signup,” then by applying different weights or dollar figures to each – either hardcoded in your action pixel or dynamically assigned (and updated) in your SEM platform – you can now optimize to a ROAS and generate greater efficiency than you were getting with a CPA target.
Keep Your Eye on the Prize
It can be easy to get wrapped up in the same old metrics you always watch. However, the same old metrics can cause you to miss the point.
While your basic metrics will help you understand your ads better, knowing the real value of the results of these ads allows you to connect your CPAs, CPLs, and ROASs to the metrics that really matter.
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