Budgeting for SEM Success
The degree of control, relevance and accountability that can be achieved through search marketing simply can't be matched with any other online or offline campaign. However, with great performance comes great unpredictability as marketers face difficulty in forecasting appropriate search marketing budgets. Search marketing is part of a complex ecosystem where a variety of metrics such as clickthrough rate, search volume, seasonal demand fluctuations and the influence of social network trends can dramatically change the complexion of the market.
This confluence of internal and external factors makes it notoriously difficult to forecast SEM spending. Managing budgets and reigning in the unpredictable requires a flexibility of approach that's unfamiliar to most traditional or even digital marketers. There are of course multiple ways for marketers to tackle this problem.
The Marginal Returns-Focused "Blank Check" Approach
For campaigns where measurable return on investment is the end goal, a "blank check" approach treats spending as a revolving door that keeps self-funding until the returns fall out of a desirable range and diminishing returns kick in. Not surprisingly, agencies and professional search marketers favor this approach, as it consistently leaves minimal opportunity on the table and can automatically reward good performance with additional budget.
For clients, flexibility with spending amounts helps to ensure returns are able to be maximized on the fly. By targeting ROI regardless of spend, agencies are also pushed to greater efficiency. If they can't bring you enough conversions, you simply offer them less of the budget to spend.
The Forecast Calls For …?
While you can't predict the weather, you can make relatively accurate forecasts with available information. Likewise, setting a budget based on data from widely available forecasting tools is another reasonable budgeting approach. Branding and awareness campaigns lend themselves to a forecasted budget approach as they might be harder to track and measure to determine true ROI.
Introducing this approach for direct response campaigns has some inherent risk where the marketer might lose precious volume from a low projection or blow through a budget with a high projection while missing an opportunity that's larger than the forecast. However, in many cases it makes sense to cap a budget based upon forecasts.
High-volume verticals, exceptionally long sales cycles, nebulous goals and shoestring budgets need to be taken into account in order to properly set a budget to prevent unsustainable expenditures. Shoestring budgets demand a forecasted approach with a growth plan, and long sales cycles can create a delay in returns that can cripple a business if spending isn't capped. Many traditional marketers prefer a fixed approach to allow for predictable expenditures and long-term budgeting stability. While a fixed budget does promote focused and accurate projections — as well as encourages honing in on the best keywords — it will inevitably result in inefficiencies because a set budget becomes either a goal or constraint. It's rarely optimal.
Test-Driving a Hybrid
While no approach is best suited for every type of campaign, finding a middle road can suit the needs of all parties involved. A "hybrid" tactic involves setting a budget target with some flex that's able to adjust to real-time changes in conditions. In practice, most companies and marketers set their search budgets using this approach. Aligning the incentives of agencies and clients can be achieved through flexible spending targets blended with performance goals.
Constantly reviewing budget levels in the face of an ever-changing market can help lend the necessary flexibility while still providing somewhat predictable budgeting. A hybrid budgeting model does lack some of the freedom of the blank check, but it doesn't constrain an agency from taking some measured chances on newly presented opportunities. It also lets marketers sleep well at night knowing what they'll be spending.
The overriding factor that needs to be kept in mind is that in a highly dynamic marketplace like SEM, a rigid budget will inevitably become either a constraint, which leaves opportunity on the table, or a goal, which can result in excess and less profitable spending. Embracing the unpredictability of the SEM universe is the first step to budgeting appropriately.
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