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About This Episode:
Many business owners or executive teams set goals for their online marketing to drive profit to the company. Unfortunately, the current digital marketing landscape makes it difficult to reach digital marketing goals that have a focus on profit:
- Generally speaking, digital marketing has increased in competition and the real estate available for paid ads has shrunk (mainly on Google which controls a vast majority of search volume).
- This has forced companies to further emphasize customer lifetime value activities (such as email and loyalty programs) to drive business profit.
- Instead of driving profit from the first order on paid search, companies now may only break-even on that initial order (some companies even lose money on the first order-on purpose).
In the first episode of Drive and Convert, Jon MacDonald and Ryan Garrow discuss how businesses can set appropriate and impactful goals for their paid search campaigns.
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Ryan, I know you’ve spent a lot of time communicating with business owners and marketing teams about their goals with online marketing. To put these goals in perspective, we have to discuss overall business goals, and that’s to me where things get really interesting, because their current marketing goals are not driving the online business towards an overall business goal. The business or individual usually has set a bad goal and the best time to review those I would think is at the beginning of a new budget year, which is typically the start of a calendar year. Ryan, today let’s talk about setting more appropriate goals to online marketing and align that with business objectives. How does that sound?
Sounds awesome. It’s one of my favorite topics actually. I get into this all year actually. I’ll be talking to business owners as they’re thinking about becoming a client or working with us. Or even if I’m just out having a beer after a conference, I always love talking about goals. It’s been a big part of my life, and how I operate so I’m constantly setting goals, revisiting them, and business strategy and goal setting go so hand in hand that it just becomes a topic I naturally get to probably in almost every conversation with business owners or marketing teams.
So often, I find that there are well intentioned people throughout an organization that set what seems to be an appropriate goal for their team, and then they get down the road 6 months to 12 months, and maybe they hit their goal, but it drove the business in a completely different direction then it actually been anticipated. Without all the stops in place, you really revisit that goal and decide, “Is this actually working and are we actually accomplishing what we’re trying to accomplish?” It can be very fascinating conversation in that process. I’m excited about this topic for sure.
I recognize and maybe our listeners don’t know, but you run several online businesses yourself, right?
Yes, my wife and I have probably more than our fair share [laughs] that we run.
I would think one is a fair share so the fact that you have more than that is awesome. That speaks to the fact that you put a lot of what you preach into practice, right?
Yes, there’s actually not a scenario in which I will advise a business owner or marketing team to do something that I’m probably not already doing or I haven’t learned from and therefore advise them correctly based on my own misgivings or wasted money.
I imagine in your day, you’ve probably set a bad goal or two.
The list is ongoing and my wife likes to remind me of those [laughs]. One funny one recently, I was so mad at myself for this one. We were launching a brand and we decided to launch it on Amazon. Partially for the education, but also because I had been built up as a digital marketer to fear Amazon, and that just made me mad that I was scared of Amazon. That’s why I go, “Forget it. We’re going to launch a brand on Amazon and see what happens. We have to understand the landscape.” Our team was deciding to start up an Amazon ads department. I said, “All right, we’ll launch on Amazon, you can have my money. I’ll set a wonderfully appropriate goal to make sure we hit our objectives.”
Initially is like, “All right, I’m going to share the upside with this team and we’re going to have a profit share.” They know my margins because they need to know that to run the digital marketing through Amazon and help create the pages and all that. We had this wonderful goal that every dollar of profit we got from ads, they were going to get, I think it’s something around 20% of that dollar, whatever that looked like. I can’t remember exactly the goal.
My goal as a business owner in launching this business was to dominate the competition. I was not in the game for profit. I want to spend down to break even to get customers, I want to understand the Amazon ecosystem, but my goal really in this is it’s an organic fertilizer. I want to take down Monsanto. A pretty lofty goal considering how many billions of dollars they have.
Yes, no kidding.
Profit was secondary to me, it was like, let’s get the product in the hands of people. I want to know their feedback as well as saying, “Hey, the more people that get it, the better my opportunities for repeat business, et cetera, et cetera.” We get three months down the road, and I’m just frustrated with growth, like, hey, we went up aggressively. When we started the marketing it was exciting. My partners and I were looking at numbers daily. It was actually when the Apple Watch which we all had had the Amazon ping every time you got a sale, which was great. We’d have a glass of wine at the end of the day and our watch would go off and we’re like, “Yes, we just got a sale. This is awesome.”
We were excited, but it flat-line so quick, and three months in I was talking to the team and I was like, there is way more search volume here on Amazon than what we’re capturing. I could see our search rank and where we are ranking the competitors and their sales volume based on reviews and all these other metrics we had to look at. We were not moving the needle forward according to my overall business goal of becoming one of the largest houseplant fertilizers in the marketplace. The teams like, “Oh, the numbers are great. Look at we spent $5,000, regenerated 10 $12,000 of profit. You cut us a cheque on the side for $1,000. Isn’t this great?”
That is not my goal. Profits, not bad. The partners weren’t upset about the profit, but the flat-line growth had to do with the fact that our marketing team that was pushing the levers, and pulling levers on the Amazon ads weren’t actually able to accomplish my overall goal of market share and getting sales and new users because they were being conservative to protect that margin, which was their goal. I had to go back to the team and like, “Okay, I like the fact that we’re able to pay you because you generate a profit. You nailed the goal. Awesome job. High fives all around, but as a business owner, I have to now change the goal because I don’t really care about profit. I care about sales.”
We adjusted the goal to get on to percent of overall revenue, as long as we’re not losing money. I said, “If there’s a dollar in profit, I’m still paying you and I’ll technically lose money as a brand, but that’s the goal I want is aggressive sales growth, regardless of dollar profit from marketing, because that initial orders when I’m getting on Amazon, and we had some brand campaigns set up so we can avoid brand non brand stuff. It turns out, we started growing again, once we adjusted that goal and better aligned with my overall business vision, but that was frustrating for me, but it’s also an example of how easy it is to get going on the wrong goal just because good intentions are not. I set a goal that just wasn’t appropriate.
I think that aligns with the current digital marketing landscape, which has had a major shift over the last few years. Would you agree with that?
For sure. It’s constantly changing. I think one of the reasons I still have a job in the digital marketing spaces is because it’s constantly changing and the landscape is constantly in flux. Google, where the largest percentage of spend many times is for a company. In the last couple of years, we’ve gone from 11 text ads down to 7, and there’s more companies competing. You can see you compressed the amount of available ad space, and then increased number of advertisers, logic dictates what’s going to happen when that does, there’s just an increase in cost per click and a real shift.
Maybe five, six years ago, a lot of our e commerce clients would have said, “Set a goal around profit, and I need to get profit from ads because it’s available.” Now profit from that first ad isn’t necessarily there for every company. In fact, many industries, it’s you’re losing money, no matter what happens on Google ads, or Microsoft ads, but you’re moving the focus from that initial sale and what are you getting from that sale to, What’s the lifetime value am I getting from that? And so it’s extending out that return.
We started doing this actually funny enough, probably about four or five years ago, with a company called Harry and David, where they did the math and actually understood how much money they should be losing on that first order to maximize their long term lifetime customer value, and how many companies they could get and how much market share could they capture. It was a real fascinating study, but we’re finding that to be more than norm now than shooting for a 10X return on ads spend when your margin is 50%.
Yes, so they’re basically looking to break even on that initial order.
A lot of companies should whether or not they are or not. My advice to a lot of companies is that first what we would considering a non brand acquisition, so somebody searching for your product or service and not your brand. That ordered in a perfect world right now should probably not have profit, it should be right about break-even and then having some lifetime value, being able to email them and bring them back into the brand through the same product again, another service, another product, having that future business coming in with your profit actually comes from.
Yes, because the cost of that second sale is so much cheaper.
Yes, and the more customers you can acquire on a non brand search, the less customers your competitors have, because that person is searching for product A unattached to a brand at this point. They’re going to buy from somebody, it might as well be you because now you have that customer data, and that ends up becoming one of the most important things to a brand, regardless of whether you’re a retailer or a brand. It’s that customer data and knowing something about them that maybe your competitor doesn’t know.
Is it safe to say that the number of levers that have impacted digital marketing return has just magnified tremendously over the past few years and maybe that’s causing confusion with the goals?
I think so. I think you also have a lot of marketing teams and business owners that have goals that they have them and they don’t necessarily know why. They’ve had them for years and it comes across to companies big and small that either their goal is, “We just take last year’s numbers and add 10, 15% whatever we think the market’s going to do and that’s our goal.” Or, “Hey, we have this profit goal from paid search and we look at it as a profit center and we always have, therefore why would we change that?”
What I’m seeing from a broad stroke high level is most of those companies looking at profit goals from their marketing are shrinking as much for what their spend could be or what they actual new customers coming through that channel could be or it’s causing them to focus more on just brand search in their paid channels, which has meaning they’re capturing the same customers over and over and over again and are not actually growing their database.
Step one is to understand and acknowledge that we’ve had bad goals, right? Step two is to fix those goals and make sure that we’ve got marketing in alignment. I think we can all agree, at least in some part, we’ve all had bad goals. You had a great example of a bad goal earlier on and now that we’ve all agreed on that, let’s talk about how we can fix those. Can you walk us through maybe an example conversation you’ve had with clients who have had bad goals and how you start to correct those?
One actually comes to mind. It’s in the auto parts space. Generally speaking the margins are not extremely high. This particular brand though manufacturers and goes direct to consumer and so their margins are higher than most. In fact their margins I think are just below 50% but they’re fairly large organization online. I think they are doing north of 50 million or so per year through their website.
We took it over from another agency and magnified their sales phenomenally. I think they spent 1% last year over year, one of the months we looked at, before I was talking goals with them, spent 1% less and had 50% more revenue and their overall profit because they track profit outside of that for their marketing team, was that 57% on marketing even including agency fees because I think that was about a wash agency-to-agency.
High level numbers looks phenomenal. They are really printing a lot of money on their paid search and they were beside themselves excited. The marketing team was in a great spot. They were super happy and one of our better references in the space. As we got into the numbers and started talking about overall business goals and what they could or should be doing, it became apparent that their marketing team had an incentive to create profit from paid search ads, which is one of the reasons they were so excited to be working with us at Logical Position because profit from paid search ads was up 57% and obviously their incentive was looking fairly solid.
Diving into the numbers. They are a $50 million auto parts company that’s part of a huge market. 50 million is one of the probably top five players in their specific segment, but it could be massive. They could probably be doing 100, 150 million a year online rather quickly, but they’re being held back by some of their goals internally. Analyzing analytics and Google ads together uncovered some things where they only had about 20% of the impression share in shopping on some of their non-brand queries. Not that impression shares and end all be all because it can be manipulated within shopping to show almost whatever you want.
This was fairly clean data that we knew that the market was fairly big for what they were doing and so despite their numbers being great, I had to talk to the CFO and talk to them about overall business goals and their goal is really become a big player and they do want to hit that 100, 150 million revenue number online and I had to talk to them about, “Okay, well, your marketing team is getting a 14X, spend a dollar, get $14 in revenue on non-brand terms,” which is phenomenal in the auto space, especially in a place as competitive as theirs.
There was a lot of room to run even with profit in the space and I put some numbers in front of them. I said, “Right now you’re using a 15X as a barometer of success in non-brand search. What if you were able to say lower that goal to a 4X. You spend a dollar to get $4 in revenue, still technically profitable. What would that do to your spend to your overall sales to your new customers? Let’s just play this out and see what happens?”
It basically said, “If you tripled your budget on non-brand terms and we’re talking about a six- figure budget so it’s not inconsequential on a monthly basis, you are still able to get the same amount of end profit to the organization as you had before, but you were able to acquire a vast amount of new users. If you’re manufacturing your fulfillment, all these things can keep pace with that. You should be pushing for a much lower return on ad spend on your non brand goals to take that market share,” because they were covering such a small– It was almost like the tip of the iceberg and they were being successful.
There’s no scenario in which they weren’t happy, but the magnitude that they could move below that waterline and capture a massive amount of market share from competitors was for sure there and that’s not the case with every company we look at or talk to. Some of them have really maximized their acquisition ability on non-brand terms, but most companies out there listening to this podcast, there for sure is the ability to push more aggressively.
John: Let’s talk about the different levers then that are involved in that equation. I heard you say that they got a few of those wrong and had to go back and correct them or that it’s limiting them. Can you tell us about a handful of these levers that everyone should be considering when they’re setting goals?
First you have to separate out brand and non-brand. People searching for your brand and your brand plus product or brand plus service, those are your earned customers. You’ve already done the work either in digital marketing or branding offline or social media. Those people are actually searching for you. That group of people searching, you’re not going to be able to necessarily set a goal that you can stick to around that because it’s going to depend on what are your competitors doing? What does the landscape look like on Google based on your brand?
If you’re Kleenex, your brand searches a little nebulous space on are they looking for you or are they looking for just your product because you’ve been branded so well for that particular product separating that out. You have to have very clean data in your account to say, that’s one piece of the account that’s just going to– we want to maximize our coverage and that’s really your goal there.
Acquisition goals in the page search realm or digital marketing realm are around new customers to your brand. We call them new to file customers. They’re new to file a new in your CRM, new in your email database. That’s really where you have a lever to push and pull for your acquisition of new customers. That’s where you take into account what are your margins? What’s your lifetime value? Those are numbers the brand has to be able to at least have a good understanding of margins fairly easy to capture that but usually we’ll start with just a broad stroke.
What’s your average margin? If it’s going to range between 40 and 50 depending on the product line they’re buying, but to meet in the middle right now at least to start with goal setting at 45, great let’s figure out your break-even is and then what’s your lifetime value? How often do they come back and rebuy or how often should they? And most companies don’t know this piece.
This is where they’re guessing and revisiting goals comes into play because you might not have a successful email campaign currently and you’re going to start it right away and you’re going to make an estimate that our product has a life span of six months, so we expect to be able to get in front of these people again in six months. Great, let’s figure that then. How many customers should we be acquiring to get this test going? Some companies and actually I would say most companies don’t start with the goal of losing money to acquire customers. Just break-even and figure out how hard can we push? This makes people really nervous by the way [chuckles].
I can only imagine, especially that CFO, you always have to talk to.
Oh yes, the CFO and in my world the CFO is my wife [laughs]. I like if I could spend a 100 grand tomorrow on digital marketing and get 100,000 profit, that’d be great. That makes some CFO, like my wife, very nervous to see, oh, the potential to spend $100,000 tomorrow is there. What if we only brought in $80,000 of revenue or profit? That would be concerning to have the family at a deficit of 20 grand in one day.
The wonderful thing about digital marketing, specifically, we’ll focus on Google right now, for the purposes of this conversation, money comes back into the brand almost as quick as you’re putting it out and depending on how Google is billing you, whether it’s net 30 or whether it’s every $500 and how quickly your merchant processor is bringing your payments into your bank account. Generally speaking, it’s a very quick wash on that. Money goes out, money comes back in and because you can see in Google ads and fairly close to real time what sales are coming in, there’s very little risk to the cash flow of the business.
That’s where most CFOs start coming at me within the cash flow like “Oh, we’ve got a byproduct. We’ve got to do all these other things.” Yes, you have to do that but if money’s coming back in as quick, in theory, it’s not causing any issues. There can be issues with having the product in stock. If you are a manufacturer, do you have the bandwidth to create that volume? Do you have the ability to fulfill that? There’s a lot of other questions that come into that based on what we think the volume could be. As you’re going into this, the threshold may not be how much can you spend, but it could be how much can we produce, sell, et cetera, et cetera. Data considerations within the space.
Ryan, one thing I’ve heard you talk a lot about between conversations with the clients that we jointly work with is something called the halo effect, right? Over time if these brands are investing in that non-branded search or shopping more aggressively, they’ll have that halo effect. Can you talk to that a little bit?
Yes. You’re going to set a goal and for most of you listening, start with a goal around breaking-even on non-brand. That needs to be on search and shopping but shopping is the fun one on Google. That’s where if you control your search terms well enough and this one isn’t necessarily easy to control because shopping is not set up with keywords. It does take some manipulation of the campaigns and structure and hierarchy and negative keywords, all of that.
Let’s assume you have that together pushing aggressively in non-brand shopping. I’m staring at my computer screens now. Let’s just say you’re selling computer screens down to break-even by marketing aggressively and shopping and pushing for extra units there. Most people that go to Google Shopping, actually two things. They buy something different. What you’re pushing and shopping as far as the click, over 50% of the time they’re going to buy something entirely different.
That’s where it does become important to monitor what they’re buying because if your margins are different, it can be problematic, but they also convert often through other channels. I personally, when I shop on Google Shopping, when I click it, I buy it. I don’t do a tremendous amount of research or I’ve done it beforehand by the time I’m looking on Google Shopping, I click, I buy, there’s not a huge attribution funnel for my personal purchases.
It’s unique for me when I look in the data and actually see that Google Shopping actually opens more sales than it actually closes. If you’re clicking on computer screens on Google Shopping, on average, you’re going to come back and buy through a different channel. If you’re looking at Google analytics, you can see a city conversions.
You’re going to see that the halo effect of investing in Google Shopping on non-brand terms, your organic traffic generally will increase. Your email, will generally increase, your direct traffic, your referrals, your social media. All of these channels will be impacted by Google Shopping. It’s fascinating to see the impact that Google Shopping can have across channel and it generally doesn’t get the credit that it’s due.
Do you mean the organic and direct traffic and these other brand channels are all going to have noticeable revenue increases as well?
They should. Again, it’s not in a vacuum where it’s perfect for every brand across the world, but generally speaking do it for three months and look at the numbers and you should see an increase. Now if you’re doing SEO as well, you would expect organic to continue to increase as well, but using the Google analytics assisted conversions, you should be able to see where Google Shopping is having an impact and you can actually get down into conversion paths and all that fun data to tell you what is being impacted the most by your extra investment in Google Shopping.
In fact, just had a conversation with the CFO, one of our clients a few days ago and they’ve been investing in non-brand shopping at a lower return on ad spend than they normally would because they’ve been seeing this halo effect. They’ve measured it and said, “Hey, we actually aren’t there.” It’s a very competitive space where there’s not a lot of profit, if any to be had in the digital marketing space because of the competition but for them they realized, “Hey, we’ve got this extra data showing that organic traffic is having an uptick and so is email and direct traffic based on what analytics is telling us about our investment in shopping.
Therefore we can go down a little bit below break-even because of that halo effect and allows them to get a little more aggressive because they do have a pretty strong lifetime value where people are coming back into the brand after their first acquisition.
I heard you say, Ryan, a little bit about how often you should be looking at this data. How often do you feel people should be reviewing that data and then perhaps even revisiting their goals?
I’m probably a little more odd in that I’m always looking at data constantly in there and you want to be aware of it. You can also get caught in making knee jerk reactions too quickly. I caution most marketing teams or business owners to go in there daily and look at the data and want to make changes. You have to let the experts in marketing do their thing. I like to revisit goals quarterly.
For my businesses, I want to say, “All right, I was shooting for this goal quarterly. Let’s look at what happened and do I need to pivot the goal, adjust the goal based on what my business is trying to accomplish?” Like I did with organic fertilizer. I did revisit the goal quarterly and thankfully a day because I was able to adjust and make it a better goal to help me drive the business where I want it to go.
In marketing, we always have the best intentions and the best hypothesis is going in and saying, “If we do this, we believe this is going to happen.” There’s always something that’s going to go wrong. Always. You may not completely miss the goal. We may go in with one hypothesis saying, “Oh, there’s this much search volume on this term, let’s go get it and then there’s more or less than, so we have to pivot a goal”, and that’s really where some experts can be valuable on your marketing team and seeing that because knowing that it’s going to be different than what you expect, being able to pivot and adjust on the fly is very important for the minutia of working on account in the paid search realm.
The marketing teams in the account constantly look at the data and make adjustments to help the account get to the goal and then higher level, I would be looking at your goals quarterly to see those goals are appropriate and they’re heading in the direction that you really wanted them to go.
Who do you recommend is involved in that conversation then? Because I’ve heard you mentioned the CFO a few times and I’ve heard you mention the marketing teams and of course the marketing experts that they might be working with to help them drive traffic. Who all do you think should be involved in those goal setting conversations on a quarterly basis?
To a degree I say less is more. I don’t like meetings in general. More people generally cause meetings to go longer. I like to keep it small. Depending on the size of your organization, you may not have a large marketing team, you may not have a CFO. Its business owner and marketing team. If there is a CFO in the organization, I highly recommend they’re involved in the goal because they’re going to have a general overview of what’s going on in the organization and maybe the sales volume is not sustainable based on inventory levels or manufacturing capabilities or the ability to ship and distribute.
The CFO should have some insight on that. I for sure think a CFO should be involved also from just a cash perspective. You need somebody that understands the digital marketing deep enough to be able to talk strategically, but also not the person actually pushing all the buttons necessarily and then the person leading marketing overall should probably be involved.
Just like all goals, there’s value in discussing those goals with experts though, right? Would you suggest that they have a third party reviewed these goals as well?
I would probably bring a third party in, maybe not necessarily quarterly, but at least annually to look at your goals. Maybe biannually, somebody that you trust just to have an unobstructed view of what you could or should be doing. Audit of Google’s a place where you’re spending a lot of your money, maybe have an audit at least once a year.
If you’re working with Logical Position, I don’t dissuade somebody from having an audit done by somebody just to see– to help keep them accountable. Accountability is not a bad thing. You want to make sure that you as a business owner or head of marketing are really getting what you’re paying for or that your goals are appropriate and driving the business in the direction that you need it to be going.
You’re not missing those potential pitfalls of that goal, right?
Yes, there are pitfalls of all kinds of goals that if you’re expecting lifetime value, but your email program is not generating it, maybe you can’t be shooting for break-even on the first order because you need some of that profit to cover a retail store that maybe isn’t as profitable as it should be. There’s a lot of variables to every business on the planet that one size doesn’t fit all as far as a digital marketing goal, but you can use guidelines, regard rails in place to help formulate the most appropriate goal.
Ryan, this has been an amazing topic. I know I can’t wait to start refining some of my own goals here at The Good. Anything else you wanted to add to this conversation?
I think just the most important thing is just make sure you’re having fun. I see too many business owners and marketing teams getting into the minutia of goal setting or digital marketing and that just becomes not fun and that’s really why a lot of people are in business in the first place. Yes, it’s a job. It pays the bills, but if diving into the details is not fun, find a way to make it more enjoyable.
Enjoy the process of setting goals, analyzing them and really find ways to win. It should be fun talking to your goals. It should be fun talking to business strategy of how is your brand going to win in 2020 and in this new decade? The potential right now for every brand is huge. You’ve got a new decade to look at, have fun with it, set some goals, be aggressive, conservative goals aren’t nearly as fun to accomplish as aggressive, big pioneer sky goals.
I would say most people would think that looking at numbers can’t be fun, but you know what? If those numbers are going up into the right and they’re trending positive and you’ve set the right goals that are helping you achieve success and revenue and profit, then things get a lot more fun, right?
They do and I like setting goals to like, “Hey, there’s a bottle of champagne in place when we hit this micro-goal on the way to our big goal.”
I love it. Most people listening probably don’t know that Ryan lives out in Sherwood, Oregon which is in the heart of Oregon Pinot, so I’m surprised you used champagne instead of a bottle of fine Pinot Noir but we’ll pop it either way and enjoy. [chuckles] All right, Ryan. Well, this has been a wonderful conversation. I can’t wait to set my goals as I mentioned, and hopefully everyone else is going to do the same for a successful 2020 and decade. We’ll chat soon.
Yes, and if anybody really out there wants to talk goals, reach out. I mean, it’s fun. Jon and I do this constantly for brands all over the planet. For me– I’m sure for you as well, Jon, it’s just it’s fun. Reach out because there’s conversations – Even if you’re not working with us, I just enjoy the process and talking through and helping companies align their goals.
Great. Well, we’ll look forward to hearing from everybody. Thanks, Ryan.
About the Author
Jon MacDonald is founder and President of The Good, a conversion rate optimization firm that has achieved results for some of the largest online brands including Adobe, Nike, Xerox, Verizon, Intel and more. Jon regularly contributes content on conversion optimization to publications like Entrepreneur and Inc. He knows how to get visitors to take action.