Marketing Ninja

Last month I attended a social get-together for marketing and advertising professionals here in San Diego. I spent some time glad-handing people I didn’t know and will probably never meet again, some time collecting phone numbers and business cards, some time downing whiskey sours at the cash bar, and some time talking shop with other slightly drunk marketers and advertisers.

The vast majority of people at this gathering were representatives for marketing and advertising agencies, sellers. I was one of the few people who represented an actual company that doesn’t sell marketing or advertising products, so that naturally made me a “buyer” in the eyes of these folks. Thus, I was subject to a ton of pitches, propositions, and inquiries into my business.

Being the courteous person that I am, I asked all of these kind people what they did. Most of them handled large local radio, newspaper, and television advertising accounts.

They often asked me about our search engine marketing, a tactic that advertising agencies are only just now catching on to, and in particular they were interested in our budget – they were probably trying to qualify me for a sale of some sort.

I told every one of them “we don’t have a budget for marketing or advertising,” to which they either gasped or stared at me blankly.

When I asked them how their clients utilize paid search the advertisers simply said “oh, they give us a budget and we spend it.” My follow up question was “well, what’s your average return on paid search spend?” to which they, once again, stared blankly at me as though I had just asked them something highly inappropriate.

I woke up the next day and arrived at the following conclusion – people who budget marketing and advertising have no idea what they’re doing.

Results Oriented Marketing vs. Big, Dumb Giants

The company I work for was bootstrapped by my father – it’s been in the .com business for fifteen years and it’s never taken a cent of funding. When he was getting the company off the ground he was forced to bootstrap his marketing by necessity, so he utilized ShareWare (1994-2001) and paid search (1998-present) as a cost-effective means of getting the word out about his product.

Every cent spent on marketing was carefully and precisely measured in terms of “return on investment;” if one paid search term consistently failed to deliver a profit, then the bid was lowered until we could reach some level of profitability or it was dropped entirely. Here’s what the graphs would look like for results oriented marketing and paid search:

When we start bidding on a search term we set some baseline bid and monitor its results for four to six weeks – if the term doesn’t turn an acceptable amount of profit then the spend on that keyword is decreased – we’ll settle for lower volume so long as that lower volume is profitable. If the term doesn’t turn a profit even after we lower the bid then it’s cut from the search engine marketing campaign completely. In the real world we also have to account for unmeasurable returns (there’s always a percentage of marketing spend that cannot be accurately attributed to a single marketing initiative), but we can measure the majority of our spend accurately.

So how much do we spend on advertising and paid search per month? We keep spending until our spend starts to cut into our desired level of profitability, at which point we scale only the most promising initiatives and cut back on the losers.

We’re always trying new things so we always have new areas to grow, but never do we sit down and say “let’s agree to take a big, pre-determined sum of money based on the results of last year’s giant lump of money and spend it on random marketing stuff and hope that it returns a profit.”

Does the above sentence sound dumb in comparison? Well, that’s what traditional marketers do. I’ve started referring to these companies as big, dumb giants – companies like Coke, Microsoft, and Nike who just spend a boatload of money on various advertising and marketing ventures without ever really knowing which ventures are more effective than others.

The issue is they don’t have an intelligent system for attributing revenue to specific marketing initiatives – they just throw a ton of dollars out into the marketplace and are happy if the company as a whole returns a profit.

Here’s how those companies are using paid search:

As I point out in one of the notes on the graph, most big dumb giants wouldn’t be able to attribute revenue to a single search term in the same way that a results oriented marketer does, but for argument’s sake here’s how their spend vs. revenue graph might look. A results oriented marketer would try to balance costs and revenue in order to squeeze out a desirable level of profit, whereas a big dumb giant will just keep spending the same amount until the cash runs out.

So you tell me – what makes more sense? The consistently profitable balancing act of results oriented marketing or the leap-of-faith of big budget marketing?

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