Over the last decade, many small businesses have been built by relying on Google’s AdWords pay-per-click advertising to attract targeted visitors to their sites. In fact, for many of them, AdWords has been the sole advertising and has served them well. More recently, however, as a recent article in The New York Times points out, many of these same businesses are seeing their advertising costs escalate and a once cost-effective medium becoming prohibitively expensive.
In many ways, the success of AdWords is what is hurting these small businesses. In essence, AdWords is a bidding platform and while the supply remains relatively steady (there are very few new words created in the English language), the demand has been increasing year after year. A large part of this new demand is driven by large brands, which five years ago were nowhere to be seen on paid search. Today, budgets in the tens of millions for AdWords are not unheard of. As a result of larger budgets and more interest, coupled with steady supply, bidding for keywords has become increasingly competitive and expansive.
Some of the most popular keywords, such as “life insurance” have seen a 20-fold increase in their prices. What this means is that if in the past you could get 100 visitors to your life insurance site and pay $100, it now costs you $2,000 to get those same visitors. At these prices it has become uneconomical for many small businesses to continue to rely on AdWords as their sole way to attract potential customers to their site. Here’s an example to illustrate this:
Bob is an insurance broker, specializing in health insurance. He relies heavily on his website to generate new leads for him. Over the course of the last few years, he’s observed the following:
- Of the qualified visitors to his site, 5% will request a new policy quote
- Of those that request a policy quote, 25% will signup for a new policy
- Bob earns $500 commission per new policy
Based on the above, Bob needs 80 qualified visitors to his site to get a single customer (a qualified visitor is one who is explicitly searching for life insurance).
Bob has spent a significant amount to time optimizing his AdWords campaigns to achieve the above conversion numbers. Because his sole cost is linked to how many people come to his site, he wants to ensure that those people are ready to buy an insurance policy, preferably from him. The optimization process has involved Bob testing different versions of his ads with different landing pages and different targeting parameters. It’s taken some work but it is now paying off. At $1 per visitor, Bob pays Google $80 and makes an average of $500 in commission, a very respectable 84% gross margin. Seeing this, he quickly scaled his investment to $20,000 a month and is now making $201,600 a year.
Sticking to this strategy, though and not seeking other ways of getting traffic to his site, would have bled Bob dry. In fact, with the cost per click of “Life Insurance” skyrocketing, his routine of investing $20,000 through his fine-tuned and optimize AdWords campaigns would mean that Bob would be losing $165,000 a year.
This highlights the danger of a small business relying exclusively on AdWords for their traffic. Just because the economics work today, they may (and likely won’t) in a year or two.
Unlike AdWords and other paid search where you pay for each individual visitor to your site, small businesses should increasingly look into organic search results as a way to drive additional traffic to their site. Organic results have no pay-per-click component, so a small business does not have to compete with big brands with huge advertising budgets. They still need to be excellent at maintaining their site with fresh and relevant content, but such investments in SEO and Content Marketing are the gifts that keep on giving.
So, while Google AdWords remains a great tool for small businesses to drive traffic to their site, it would be wise to also invest in other ways to improve inbound traffic to your site.
Post by Nikos Iatropoulos