Search Term Value Thanksgiving

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Mac

Mac

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Jun 11, 2007
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For those that may be interested, I performed an experiment with Google's Adwords program on what the big boys are willing to spend for the search term "Thanksgiving flowers."

I think some of you are going to be surprised at what they've set as its current value. It made my jaw drop.

Any way, the article is the lead post on my blog here or go to it directly here
 
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Interesting stuff.

However, over all the years I have used adwords, I have yet to be charged the maximum I bid on any keyword. In fact the average is usually less than half.
 
Yes that is true, but while my ad was at third spot at 10.50 a click that means that if somebody clicked on any of the two websites above me they would be paying at least $10.51 for that click.

The top three players are paying that much because the guy in the third spot has made it that way.

Any way, the search value is great at this time.
 
Excellent stuff amigo and excellent results.
 
The fact that they have a really high PR and most likely a Good or Great QS probably cuts that price in half if not by more.
 
Mac said:
Yes that is true, but while my ad was at third spot at 10.50 a click that means that if somebody clicked on any of the two websites above me they would be paying at least $10.51 for that click.

The top three players are paying that much because the guy in the third spot has made it that way.

Any way, the search value is great at this time.
Click to expand...
That's very untrue - Quality score means they will pay much less. If you're paying - or having to bid - $10+ for that keyword, it's reflective on your QS vs theirs. AdWords hasn't been a straight auction for years.

Ryan
 
It's one of the reasons new advertisers pay more - quality score.

If you wait and only jump in on holidays, chances are you ads will cost significantly more than the 'long haul' advertisers.

It's not like the old Yahoo/Overture structure where the higher bidder had to pay a penny more than the next lowest bid.
 
Mac said:
I think some of you are going to be surprised at what they've set as its current value. It made my jaw drop.
Click to expand...

Yep... at $10.75 a click, my jaw DID drop.

After I wiped the spittle off the floor, I have to ask the following question: HOW can they make money doing this? These folks aren't stupid, so I assume that they know what they are doing.

So follow along here.

Let's assume for the sake of discussion that their click-to-conversion rate is 10%. I suspect that's much higher than with most online floral operations, but it might represent a "best case scenario." (Besides, it makes the numbers easier to follow!)

So, each sale costs them about $100.

Let's assume the average sale is about $50. And the GROSS MARGIN is probably around 50%. So it takes about 4 sales from the SAME CUSTOMER over a "reasonable" period of time in order to "break even" with respect to Gross Margin.

But that's not a realistic analysis point, because they have other costs and also expect to make a profit. Let's assume then that they expect to make 10% on sales. Also assume that they have operating costs that might make up an additional 15%. That leaves 25% for advertising.

So, 'Break Even" with respect to overall costs seems to occur when they get about 8 sales from the same customer over a reasonable time period.

If they were a grocery store, expecting the same customer to come back 8 times a year is very likely. But is it likely for a florist?

Studies show that the average American buys flowers about 1.7 times per year. If the average American is the same as the average online flower buyer, then it takes more than 4 years to achieve break-even!

So, unless the average online flower buyer purchases flowers 8 times per year FROM THE SAME SUPPLIER, then I don't see how the online "pay per click" strategy can work with the numbers shown above!

(Very few of MY online purchasers buy more than 2 or 3 times a year. How does that tally with others?)

The "Big Boys" aren't stupid. But I certainly can be! What am I missing?

A very puzzled,

Bill
 
kt4ye said:
The "Big Boys" aren't stupid. But I certainly can be! What am I missing?

A very puzzled,

Bill
Click to expand...

Bill, they aren't paying $10.75 per click that's why. I tried to explain it in my post, but I think Jared, Infinite and CHR pinpointed it better. With adwords, it's all about your Q score. A new ad will have to bid higher for a high position because it's quality score is low.

A Quality Score is calculated every time your keyword matches a search query—that is, every time your keyword has the potential to trigger an ad. Quality Score is used in several different ways, including influencing your keywords' actual cost-per-clicks (CPCs) and estimating the first page bids that you see in your account. It also partly determines if a keyword is eligible to enter the ad auction that occurs when a user enters a search query and, if it is, how high the ad will be ranked. In general, the higher your Quality Score, the lower your costs and the better your ad position.

Quality Score helps ensure that only the most relevant ads appear to users on Google and the Google Network. The AdWords system works best for everybody—advertisers, users, publishers, and Google too—when the ads we display match our users' needs as closely as possible. Relevant ads tend to earn more clicks, appear in a higher position, and bring you the most success.
Click to expand...
 
kt4ye said:
Yep... at $10.75 a click, my jaw DID drop.

After I wiped the spittle off the floor, I have to ask the following question: HOW can they make money doing this? These folks aren't stupid, so I assume that they know what they are doing.

So follow along here.

Let's assume for the sake of discussion that their click-to-conversion rate is 10%. I suspect that's much higher than with most online floral operations, but it might represent a "best case scenario." (Besides, it makes the numbers easier to follow!)

So, each sale costs them about $100.

Let's assume the average sale is about $50. And the GROSS MARGIN is probably around 50%. So it takes about 4 sales from the SAME CUSTOMER over a "reasonable" period of time in order to "break even" with respect to Gross Margin.

But that's not a realistic analysis point, because they have other costs and also expect to make a profit. Let's assume then that they expect to make 10% on sales. Also assume that they have operating costs that might make up an additional 15%. That leaves 25% for advertising.

So, 'Break Even" with respect to overall costs seems to occur when they get about 8 sales from the same customer over a reasonable time period.

If they were a grocery store, expecting the same customer to come back 8 times a year is very likely. But is it likely for a florist?

Studies show that the average American buys flowers about 1.7 times per year. If the average American is the same as the average online flower buyer, then it takes more than 4 years to achieve break-even!

So, unless the average online flower buyer purchases flowers 8 times per year FROM THE SAME SUPPLIER, then I don't see how the online "pay per click" strategy can work with the numbers shown above!

(Very few of MY online purchasers buy more than 2 or 3 times a year. How does that tally with others?)

The "Big Boys" aren't stupid. But I certainly can be! What am I missing?

A very puzzled,

Bill
Click to expand...
Bill,

Here's some numbers for you:

On average, FTD.com spends aout $25 per customer on PPC. That's $25 to acquire a customer, average order around $60 + handling fee, of which they keep 20% + rebate (from one pocket to the other). So, they are getting close to $20 or more on that first order. Even if they lose a bit, they are masters at follow-up marketing via email.

Regarding Adwords & Quality Score:
Ad "A" - FTD.com ad, carefully crafted by a PPC marketing manager, using a variety of tactics to lower bid price. Done properly, you can place ads at a fraction of what the average advertiser pays. This ad gets a 10% click-through rate.

Ad "B" - Displayed by your average florist who has decided that this is a good time to try some online marketing. They follow the campaign setup procedure with Adwords, dump a bunch of braod match keywords into a single campaign, make 1-2 ads and sit back and wait. This ad gets a 1% click-through rate.

Google evaluates both ads on relevancy, bid and quality score. Ad "B" has no account history, and what history they are starting to generate is terrible because the account was created by an amateur. Ad "A" has a solid CTR and is on an account that has a lot of historical data of strong performance.

If you're Google, would you rather show an ad for $1 that history shows one-in-ten customers will click on, or an ad for $10 that the small data you have suggests one-in-one hundred will click on?

For 100 visitors, you can make a time-tested $10 on 10 clicks, or a long-shot $10 on one click from the new guy. Google will play the odds and favour the ad that gets more clicks.

Quality score factors include CTR, quality of your landing page (no, your home page is NOT an appropriate landing page), organic ranking of your landing page and (some speculate) your conversion tracking data.

What's that? The owner of Ad "B" doens't know what conversion tracking is? You mean you're not feeding data back to Google about how your ads are converting? That leaves Google to guess about whether people actually like what they see on your site. No confidence = lower confidence for Google.

Ryan
 
OK Ryan...

Everything you said makes sense. If PPC cost/customer is $25 then FTD/FTD.com will get $12 (handling) + $1 from receiving florist + 27% of $60 ($16) = $29. But they still have other allocated costs so (unless they are playing bookeeping games) the transaction is STILL a net loss.

The key point then, is how many times can they get that new customer to repeat an order in a year?

Bill
 
I have a theory.

First off, I think Ryan's estimate of "ppc cost/customer" of $25 through google could be less. But say he's right on and FTD were to make even $1 off each of these customers, with the amount of volume they generate, this is still a nice chunk of money.

But making huge money isn't the purpose of FTD playing the ppc game.

  • Orders are what fuel the wire service system. PPC is a key component to acquiring a large volume of orders. Without incoming orders, florists will quit membership. Less members mean less membership dues, less branded product purchases, less credit card processing fees and less fees in general.

  • Why let the other competition get a free ride? If FTD drops out of ppc, this means more clicks for Teleflora, 1800, etc... at a lower cost per click. It's sort of a case of addition by subtraction.

  • Staying at the top of every single pertinent keyword available, helps them stay relevant. To be a player you have to be noticed.
 
I'm saying they are paying $2-$5 depending on the term. And imho 5 dollars is pushing it.

People who are top dogs in their industry hardly ever pay more than 3 bucks a click, even on popular keywords.
 
jared said:
I'm saying they are paying $2-$5 depending on the term. And imho 5 dollars is pushing it.

People who are top dogs in their industry hardly ever pay more than 3 bucks a click, even on popular keywords.
Click to expand...

An important issue is not the cost per click. It is the cost per conversion.

And yes... FTD, TF and 1-800 all have the same goal -- that is to generate orders that they can feed to the florists to fill. THAT is where they are making their money. The term is "recurring revenue," and that is what they really want: membership that is there 12 months out of the year.

So, they are playing by different rules. If a REAL florist advertises, the cost of the advertising must be paid for by the revenue directly generated by that ad. But TFTD800 do not necessarily care about THAT profit. They get their profit from membership dues.

Thanks for the reminder, LJVF!

Bill
 
LJVF said:
I have a theory.
First off, I think Ryan's estimate of "ppc cost/customer" of $25 through google could be less. But say he's right on and FTD were to make even $1 off each of these customers, with the amount of volume they generate, this is still a nice chunk of money.
Click to expand...

That number came from someone at FTD.com - although it wasn't this year, so the figure may have changed.

jared said:
I'm saying they are paying $2-$5 depending on the term. And imho 5 dollars is pushing it.

People who are top dogs in their industry hardly ever pay more than 3 bucks a click, even on popular keywords.
Click to expand...

I'm inclined to agree - though they'd even likely be willing to pay up to $7 for a premioum term, I doubt they are paying more than $5.

kt4ye said:
OK Ryan...

Everything you said makes sense. If PPC cost/customer is $25 then FTD/FTD.com will get $12 (handling) + $1 from receiving florist + 27% of $60 ($16) = $29. But they still have other allocated costs so (unless they are playing bookeeping games) the transaction is STILL a net loss.

Bill
Click to expand...

FTD understands the lifetime value of a customer. They invest significant time and effort in customer retention. If you capture a customer for 5 yrs at 3x per year that's ($60 + 12.99 + rebate*) x 3 x 5 = $1,200
This is a very conservative example. FTD is quite happy to take a loss on the first order as they see the big picture.
(*Note: I don't know the internal rebate figure FTD uses for .com - I used a conservative $7 figure here)

Ryan
 
Sort of on that same note - while b*tching about FTD being in my phone book I have been repeatedly told (company line of course) that they lose money on the yellow pages game.

I have told them, including directly to the new owner - they lose more than money, they lose relationships with their members, and that very act removes any semblance of loyalty from their top members.

So is it worth it?

Apparently so.

well

opinions vary.....
 
It's all about lifetime value of a client vs. the value of a single transaction.

That philosophy is a great motivator on a personal level as we deal with customers. Don't think of them as a $20 bouquet, think of them as $5-10k worth of lifetime purchases. Treat them like a $10k customer :)

Ryan
 
Infinite said:
It's all about lifetime value of a client vs. the value of a single transaction.

That philosophy is a great motivator on a personal level as we deal with customers. Don't think of them as a $20 bouquet, think of them as $5-10k worth of lifetime purchases. Treat them like a $10k customer :)

Ryan
Click to expand...

...but how can "we" (defined as a small mom & pop right up to 1-800 & FTD) calculate the lifetime value of a customer over 20 years...

...when the lifetime value of many of our businesses may not even be 20 months????

Wouldn't "we" be "banking" on creating a current liability in exchange for a long-term asset?

An asset which may in fact have little or no value?

Just thinking is all...

:faint:
 
Frank,

That's why FTD et al send LOTS of email ads. Lots.

They invest time in segmenting, personalizing, developing offers ... the reason the ROI on email marketing is so good is that it's about retention. You're soliciting repeat business from people you've satisfied previously, while staying top of mind.

I dare say that if you treat someone like a lifetime customer, it's more likely that they will become one. It's a constrasting attitude to the short-sightedness of focusing solely on the deal & the transaction at hand.

Ryan
 
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