The Problem(s) with Paid Search for SMBs

MIHMORANDUM NO. 355 | June 8th, 2009Reader Comments (17)

Devil's Churn

Photo Credit: Devil’s Churn by ArielAmanda

Borrell Associates just authored a report on SMB Search Ad Spend at the behest of Clickable (download report) highlighting the incredible churn rate among SMB’s who are being sold search advertising.    Eminent Local Search analyst Greg Sterling authored an interpretation of the study on Search Engine Land this morning.  

Apparently, the average turnover is around 50% of SMB’s who do not purchase online ads from the same company the following year; for some resellers, the rate approaches “100 percent on an annualized basis” (!).

Even the Wall Street Journal found this newsworthy.  In the final paragraph, they speculate that Google’s rollout of LBC changes was in direct, or indirect, response to the problems that Google and its resellers are seeing with SMB’s quitting Adwords.  I of course would argue (and did argue, last week) that there are MANY more effective steps that Google could be taking to get SMB’s excited about search, but this study indicates Google’s awareness, at the very least from its resellers, of a need to do something.

Greg and I talked about the general state of Local / SMB Search at SMX Advanced last week, including some of the reasons for churn he mentions in his SEL piece:

  • A lack of education for the SMB and appropriate expectation setting
  • Not allowing enough time for the campaign to become optimized
  • Media salespeople who are compensated on customer acquisition, not customer retention
  • Not enough of the advertiser spend going to the media/search buy (as much as 40 percent may go to overhead/profit, yet that may be necessary)
  • In a limited number cases, the advertiser seeking to pick keywords or otherwise dictate or manage its campaign from afar (and not well)

All thoughts are Greg’s; the bolding is my emphasis.  In my experience, #3 is a biggie.  Based on the emails and phone calls I get from my clients, they’re being solicited by about 4-5 companies per week, either by email or phone, for either SEO or SEM services.  By-and-large, these salespeople are a) not very knowledgeable about search themselves b) very aggressive and c) not shy about badmouthing the competition.  

It’s obvious that their commissions are based on acquisition, and also speaks to another reason for churn, which is that unless salespeople stay in constant communication with their customers, they’re likely to be poached by another company.

As far as the profit model, I certainly don’t begrudge companies charging 40% overhead, if they’re able to deliver on that now…but…

I’ve seen paid search for my clients become dramatically more competitive in the last 12-16 months, and the ROI for SMB’s, and thus for their providers, just isn’t going to sustain itself.

With the increasing ubiquity of the 10-pack, Google is forcing more and more large advertisers with deep pockets into paid search, as I argued over a year and a half ago.  This is pricing out moms and pops, who don’t have the scale to compete with Fortune 500’s and big box stores, both in terms of bid management and creative rotation AND in terms of cross-location balance of ROI.

The companies that serve these SMB’s will need to raise bids accordingly.  As a result, they’re going to see increasingly slimmer margins and fewer customers who can sustain the necessary spending levels.

Of course, the risk in all of this is that SMB’s are promised something that ultimately doesn’t lead to revenue, and become soured on the whole idea of search.  Personally, I think this is a GREAT thing for those of us who practice Local SEO as opposed to PPC, though.  These companies like ReachLocal and Yodle, along with Google’s enhanced LBC, are indoctrinating SMB’s into the idea of search, and hopefully piquing their interest in what can be done organically.

This is not to say that PPC can’t or doesn’t work for SMB’s across the board…there are plenty of examples of businesses who have done quite well with it.  But given the massive benefits of a professionally-managed paid campaign and the lack of true quality providers who will serve an SMB (most seem to have a $5k/mo. minimum spend), those businesses would seem to be in the minority.

17 Responses to “The Problem(s) with Paid Search for SMBs”

  1. Dave Oremland says at

    Nice comments.

    I’ve both sold into the smb market with primarily big ticket services…but briefly w/ something that is akin to trying to resell ppc. For quite a few years I’ve purchased some, if not the majority of advertising for some smbs.

    The last thing I need is for some IYP to manage ppc. I can’t see it. The salespeople sell it like crazy…I haven’t purchased it from a reseller…but I can’t imagine how they could give great service. They are trying to mass manage many accts of many many different businesses—none of which they can devote time, thought and energy to on a basis that it might merit.

    I believe it is an opportunity for the local/quality and sem’s…and web agencies that can give a better level of quality and service to an account.

    That might not meet google’s desires and needs to mass sell ppc….but the churn indicates that the results are horrible.

    The methodology needs to be improved to mass sell ppc. In the meantime…its a great opportunity to those who put in time, thought and effort.

  2. MiriamEllis says at

    Here’s a remark that may come off as self-aggrandizing, but I just don’t think that big business providers are the right match for most small business needs. From talking to small business clients over the years, I can’t think of an instance in which a small business owner was better served by a big business web services provider than by a small one. I see this across the board in SEO, design, PPC and what have you.

    If the overall health and happiness of the client and his business is the goal, the relationship is mutually beneficial to provider and client. But where the end goal is just a quick sale, and no real relationship forms, there will be no long term benefit for either party.

    Very interesting remarks from you, David, and from Greg, too.

  3. Clark Mackey says at

    Great post and I second MiriamEllis on the poor fit between large SEO/PPC providers and most businesses. I don’t think it’s self aggrandizing.

    Just for fun I make a point to talk to sales reps on the phone when they call me for one of the large SEM providers. It’s clear that they are being paid per acquisition and know little about the work that actually needs to be done. It’s also clear that some of them are using marketing strategies that revolve around things other than generating quality content. If one of those strategies involves buying PPC ads to drive traffic to a directory site … well, they are obviously making it harder for an actual SMB in those categories to get a good return.

    In contrast to the auto dialing sales teams at the large SEM providers, I’ve bec0me a big believer in the 3 person marketing team – a marketer, a designer, and a database programmer. I first saw this described in the 37 Signals book “Getting Real” and I think they hit the nail on the head. The right small team is the ticket for helping businesses to grow.

    One of the problems that remains is that the services of a good small team are still beyond what most small businesses want to pay. It seems there should be some product out there that could actually help the local plumber (as an example) show up in a search without having to resort to hiring a small team or a full on advertising firm. I note that Google itself may be trying to play this role as they offer more and more help for the SMB.

  4. Tim Coleman says at

    Another problem is that many resellers don’t disclose what they charge for their service. You said 30-40% but that is just what educated people in the space are guessing. If someone came back and told me it was 80% or 200% or 300% I would not be shocked.

    My guess is that the price is something complicated, why else wouldn’t they disclose it? Some don’t even tell their salespeople how much they charge.

  5. Andrew Shotland says at

    Tim my experience with some of these SMB aggregator types is they are looking to make about a 30% margin on these campaign when a partner brings in the customer. If they make the sale themselves and they can hold onto the advertiser I am guessing it’s closer to 50%.

  6. Neil Street says at

    Clark Mackey said “It seems there should be some product out there that could actually help the local plumber (as an example) show up in a search without having to resort to hiring a small team or a full on advertising firm.”

    There is. It’s the local, individual SEO who does full-service SEO for small local clients, usually charging an hourly rate, for ongoing, continuing work each month.

    I do it for my clients. Is it effective for the SMB? Well, here is a verbatim copy of an email I sent to one of my clients last night — the only thing I have changed is her name and industry, for privacy:

    “Susan:

    If you were ever wondering about the importance of Facebook pages, check this out:

    if you search “Plumber, Westport, Connecticut” on Google, your main site is #1, your blog is # 2, and your Facebook page is # 4. I’m just starting to see it showing up like this. You get pretty much the same story on Yahoo.

    Keep it going!

    Neil”

    BTW: I should also mention, for the benefit of blog readers, that this client’s site was # 7 in the “ten pack”. That is four listings on page 1 of Google for one of my c lient’s premier keywords. Multiply this across hundreds of keywords, and you have a damn good online marketing program. For about $500 a month in SEO fees, it’s a great way for small local businesses to go.

    Local organic SEO is a holistic program with lots of elements that can be tailored to a specific local business. And for most local businesses, it is not “rocket science” to get them to the top of the heap. And keep them there. Savvy local businesses should be hiring good, local SEO’s who “do it all,” and do it a bit at a time on a monthly basis. This way, they build up a solid, long term, online marketing program. I would rarely advise a client to rely primarily on PPC. Think about it — if a small business relies mainly on PPC, the minute they turn off the cash investment, they vanish from the online world. Whereas organic SEO lasts a lifetime. (almost).

  7. Dave Oremland says at

    @Neil: Nice work.

    I was relooking at this. The problem for SMB’s is not paid search…its reselling ppc ads to smbs.

    PPC works for us. We handle it directly for individual businesses. OTOH, I don’t want to pay some “monkey” to deliver clicks to a ppc acct from some automated bot.

    When we dominate a relevant search page..as Neil described above on behalf of his clients…..

    I virtually don’t care if the searchers click on ppc, the maps insert or the organic results. Just get us the clicks and the contacts and we will work to sell the services and products.

    I can’t dominate when part of the process is from a mindless reseller who frankly doesn’t give a cr@p about our results…but loves to take our advertising dollars.

  8. Brian Hancock says at

    Nice post, interesting read. I am in the local space as well and there are lots of horrible and hungry salespeople, and not just the large companies. many local SEOs have proven to be very cut-throat in contacting our clients and trying to point out everything we are doing wrong… Anyway, I agree that the more competition that enters the market, the harder it will be to achieve good ROI. There are only so many spots on the first page of a search, and lots of people that market by throwing money around which artificially drives up CPCs…

    @Neil Street – your comment peaked my interest so I did the search and didn’t see a Facebook page in the results and even went several pages deep. Do you have personalized search on for Google or am I missing something?

  9. brad says at

    David – I posted a similar comment over on Matt’s blog; but as this conversation is near and dear to me (I’ve spent several years making this work for companies) that I just wanted to post it again for your readers as well:

    I use to be highly involved in one of these aggregator programs (10s of thousands of clients).

    It’s not necessarily that all the services are poor, in fact, many of them are exceptional (and some are poor – large range of expertise).

    It comes back to the product definition and the sales call. If you first work with the client to set proper expectations, and then secondly report to the client on conversions (which is mostly phone calls) – you can have very happy small businesses as they understand what they are receiving, and can see the value of those dollars.

    The issue is some of these services do not do a good job at the two above points (there’s much more to product definition than those two points).

    Here’s an article I wrote last year on this subject:
    http://www.bgtheory.com/blog/businesses-are-confused-do-you-have-the-right-product/

    YPs, Newspapers, Sales agencies, etc can succeed in this game – with the correct sales process (such as a need based analysis approach), product, support, and execution. The question is – can any of them actually pull off that approach?

  10. Jeff Howard says at

    I think on most levels SB will do better investing in organic search, only using PPC at the beginning of a campaign to gain some extra knowledge of conversions, or keyword search frequency. Frankly, by the time all that is complete a SB will run out of steam. This is a nice little image on PPC vs. SEO.

    http://searchengineoptimization.elliance.com/search-marketing-resources/seo-infographics.aspx?title=Long-Term-Organic-Versus-Paid-Performance&Category=Why%20SEM

  11. David Mihm says at

    Thanks for all of the great comments, you guys. Sorry I have not had a chance to respond yet.

    @Dave / Miriam / Clark, I agree that there seems to be a great need among SMBs for a high touch-and-feel relationship with their provider & it is unlikely that a big firm will be able to deliver that.

    @Brad, thanks for stopping by. What a great article, thanks for the link. Ties in perfectly to the closing paragraph I wrote in my upcoming SEL piece (to be published on Thursday).

  12. Max Kalehoff says at

    David,

    Thanks for your thoughtful response. You and Greg Sterling both arrived at an interesting question: What is the viability of very small advertisers to achieve ROI in increasingly competitive PPC categories. Is there a point at which an advertiser and corresponding ad spend is too small?

    The answer for resellers is simple, but the solution requires some sophistication. Importantly, competition across PPC categories and geographic regions vary drastically. For example, keywords for personal injury attorneys in New York City are likely to be far more than in Boise, Idaho. Likewise, competition for keywords around personal injury attorneys will probably always be higher than, say, keywords for local pizza shops, in any location. Therefore, search-marketing lead generation packages sold by resellers must factor in those competitive nuances, and (pardon emphasis) MUST ENFORCE MINIMUM MONTHLY SPENDS, accordingly, in order to radically increase the chance for success. There is no magic minimum threshold because keyword categories vary, and vary by region — indeed, greater sophistication is needed here in the reseller model.

    That, of course, is in addition to:
    – Properly managing expectations in the sales process.
    – Delivering value that is easily understood by local businesses — a shift from selling Web site visits to selling quality leads and phone calls.
    – Optimizing reseller economics and performance through scalable technology — which, by aggregating smaller advertisers, enables them to become more competitive than they would be alone.

    Addressing these friction points leads to incredible opportunity in the local online advertising industry. At the end of the day, search advertising works very, very well. It is among the top performing methods of advertising — period. We must not forget that. The reseller industry must drive deeper understanding of the challenges and opportunities — and then reform and innovate — to improve the overall performance for local and small advertisers. We’re optimistic.

  13. Zac says at

    I think the dilemma is putting the cart before the horse. I’ve seen many SMB’s purchase very large PPC and other SEM products for years. Sure clicks come but there is little to no increase to the bottom line for the business. SMB’s are excited about the internet, they understand its place in the business world and how it can help their business (sometimes). The dilemma as I saw it, is the customers are not prepared. When you open up the flood gates just to have your potential customers land on a poorly designed and non-functional web sites does little to no good. But the large businesses keep on selling it to them.
    I agree with your sentiments regarding the causes of cancellation… And yes, I also agree wholeheartedly – it is about setting proper expectations, then following through.
    I like Clark Mackey’s post – but I have to disagree with his point that most SMB’s don’t want to pay or can’t. I’ve worked with a large YP publisher and ‘Joe the Plumber’ will spend over a million, yes a million dollars a year in YP advertising – why not online? Its all about the trust factor and unfortunately too many SB’s have been burned in the digital arena.

  14. Jim Stiner says at

    Nice post David,
    I got here from a post on a forum.

    Neil you said “For about $500 a month in SEO fees, it’s a great way for small local businesses to go.”

    How is that model scalable?
    How many hours does he get for $500?

    Jim

  15. Todd Bryson says at

    This is a very true post. Too many SMB’s are leaving the adwords system. As a former salesperson for one of these large adwords resellers I saw it first hand. My retention was about 60%.

    But this is primarily due to figuring which industries could a) afford a large enough budget to really let the campaign optimize and b) it took me time to understand which business verticals could eek out a positive ROI.

    So, you can say that both myself and the SMB’s had to first expleore PPC advertising to see if it worked. The answer is that it works for SOME verticles but not all.

    SMB’s are getting massively bombarded by sales people. As the print yellow pages salesforce gets laid off they naturally move to reselling ppc. These people are salespeople…..not professional consultants with the knowledge to know what works for each type of business. And all they know is PPC. They badmouth organic search and dont see the value, they dont understand social media and they oversell ppc campaigns and include irrelevant keywords or too broad of keywords in their camapigns. It may work for Party Supply Company but is allot harder for the Local CPA to find new clients.

    Most of these SMB’s also have crappy websites. These crappy websites dont convert all that well. This lends a factor in the problem with Adwords Churn. However, I have been working with a small business that does martial arts training. He is using a squeeze page to capture leads. http://www.victorytapout.com. He captures emails and then hits them with an autoresponder. It seems to be working very well. So, I may have to rethink my whole landing page strategy which is more in line with a site like http://www.genesislaser.info that we designed.

    PS- what does the community out there think is the proper amount to charge a month for seo services. (Of course it depends on what you do each month). But I would be curious to know what the industry standards are out there.

    Todd Bryson

  16. Reverse Osmosis : says at

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  17. Paul Benjou says at

    Great observations.
    The problem, however, is not with paid search. The problem focuses squarely on the provider side of the industry. Far too many SEM providers (and I am differentiating SEM from SEO) simply do not understand the mindset of the small business owner. Marketing is, in most cases, the last thing on their “to do” list and they don’t have the luxury of time and resources to tend to finding, setting up, managing and monitoring the effectiveness of their SEM efforts.
    As the providers step in to manage the void, the temptation to take advantage of the little guy intensifies. I cannot on any level justify a 40% “fee” to manage a SMB SEM campaign. It only serves to taint the well, losing a customer forever and driving negative WOM to the neighboring businesses.
    Churn happens because of overpromise and underdelivery. Typically a sales tactic that only goes so far before it sours.
    SEM providers have for too long lacked the long term vision to build a product that reduces overhead through simplicity and automation. It’s the back room filled with an army of “account service” types that’s killing margins.
    As for the major engines, they simply cannot think like a small business and are always tossing the small guy into the search boxing ring with the big guys. The strategy does not play well.
    In a display of flagrant self-promotion, our conmpany, SEMplest, has been quietly working in the background to simplify and automate the “back room” and we believe we have successfully cracked the local code for the small business, scaling up to the larger corporate players.

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