This article was originally published on Resolution Media’s blog, FindResolution.com.
In my highly-biased and in no way impartial opinion, there is no more effective place to spend marketing dollars online than in search marketing. The level of control, accountability, and relevance is unparalleled in online marketing and even offline marketing. However, this degree of control can come at the expense of predictability. Anyone who has ever been tasked with forecasting search spend is familiar with this problem. There are so many factors that can have a huge impact on spend (CTR, CPC, search volume, seasonality, news cycles, etc.) that it becomes a very tricky task to make accurate guesstimates. So how does one budget for search marketing if it is so unpredictable? There are a few schools of thought, and each has its own incentives and pitfalls.
The first school of thought is carte blanche, a blank check to spend as much as you can until you get diminishing returns. This option is especially optimal for ROI-focused campaigns. The thinking is that a search campaign is a revolving door of money. Keep putting money in until you are no longer getting more than you put in. For obvious reasons this option is favored by professional search marketers and agencies. Who wouldn’t want an uncapped budget? However, this option favors clients as well. Only by being flexible with the amounts you spend can you be assured you are maximizing your returns. This helps minimize waste while maximizing opportunity. This also encourages efficiency from your agency partners; if they are not running efficiently enough to bring in higher volumes of profitable conversions, they get less to spend.
Another school of thought says to set budgets based on forecasts. This approach is well-suited to awareness campaigns, branding campaigns, and campaigns that are difficult to track such as “clicks and mortar” campaigns. It is favored by most marketers because it can fit the unpredictability of search into a predictable budget. For direct-response or ROI-focused campaigns this approach risks either missing out on some volume due to a low projection, or missing your budget number due to a high projection. However, in some industries there is virtually unlimited search volume so it makes sense to limit your search marketing to a set budget to avoid huge expenditures. Search can also be run on a shoestring budget, but if the returns are delayed due to credit terms or a long sales cycle then a company could have significant financial exposure if search spend is not capped. Setting a fixed budget encourages search marketers to be as accurate as possible with their projections, but can prove to be a constraint on maximizing efficiency.
The third approach to budgeting is somewhat of a hybrid of the first two. It basically amounts to a flexible budget that can adjust to market conditions. Realistically, this is how most companies allocate their search budgets. As the market changes, spending and targets can change with it. Flexible spending encourages strong communication between clients and agencies so that both can understand the extent of the opportunity as the campaign progresses and make adjustments accordingly. While not as freeform as carte blanche, this still allows the agency to seize opportunity while providing the marketer with some modicum of predictability. However, if the two cannot coordinate these changes quickly enough, some opportunity will be foregone in the shuffle.
How you allocate your search dollars will depend greatly on your potential market size, your product, your costs, and the type of campaign you are running, be it awareness or direct response. Regardless of where on this spectrum you fall, it is important to always keep your goals in mind and make sure that your budgeting serves your goals for the campaign.