I recently had the privilege of visiting Google’s HQ for the 2014 Google Partners All-Star Summit along with local PPC personality & fellow Forthean, Davis Baker.
As it was my first trip to Mountain View, there was much to absorb. Hundreds of Googlers peddling around on colorful bicycles, trivia tidbits from The Internship, and talk of lawn-mowing goat sightings. One of my favorite Google-isms has to be their philosophy around food. According to research, taking a break longer than two minutes interrupts one’s train of thought, so enough restaurants and mini-kitchens have been installed around the campus to ensure no Googlers are ever more than 150 feet away from grub.
The Profit-Driven Marketer
The topics and speakers at the Partners All-Star Summit covered many areas of digital marketing and were all top notch. One of my favorite sessions was the Profit-Driven Marketer presentation delivered by Matt Lawson, director of marketing, performance ads at Google.
Anyone familiar with digital marketing knows that there’s no shortage of metrics to measure, dissect, and report. Specifically, in the world of Pay Per Click (PPC) advertising, there are several types of metrics a marketer can look at and focus on for an ad campaign:
- Reach: Impressions, Clicks, Impression Share
- Relevancy: Click-through-Rate (CTR), Bounce Rate
- Acquisition: Sessions, % New Sessions, % New Users
- Site Behavior/Engagement: Pages Per Session, Avg. Session Duration, Events, Conversions, Transactions
- Efficiency: Cost Per Click, Cost Per Conversion, Return on Investment (ROI), Return on Ad Spend (ROAS)
- Business Success: Profit
ROI/ROAS or Profit: Which is the better KPI?
What we measure as an organization is a reflection on what we think is important. Peter Drucker, dubbed the founder of modern management, once stated, “What gets measured, gets managed,” Or put another way:
“You are what you measure.”
During the presentation, Matt Lawson honed in on two types of metrics, efficiency & profit, and drew an interesting contrast between the two.
While both are important angles to evaluate advertising performance, efficiency metrics like ROI/ROAS, do not take volume into account. For example, a business with advertising efficiency as their primary KPI could have a growing ROI or ROAS and, at the same time, diminishing total sales or leads. Therefore, profit is a superior metric to focus on for long-term business growth.
Create a Profit Model & Make Profits Your Main KPI
As a first step towards profit-driven marketing, Matt recommends promoting increased profits as your primary indicator and drafting a simple profit model for your advertising campaign. Don’t try to overcomplicate things here, the best models are those that are easily understood and agreed upon by all stakeholders. Below we have provided an example formula for you to apply to your particular business.
What Do You Want Your Business to Be: a Bonsai or a Sequoia?
As a parting thought, Matt left us with a question in order to challenge how we all approach marketing:
Do you want to prune bonsais or grow sequoias?
By that he means, as marketers we have two choices when managing advertising campaigns:
- Bonsai – We can either focus all of our efforts on improving efficiency and cutting spend, similar to a bonsai caretaker. Though cost per conversion and ROAS may improve, we may end up with a well-pruned, but low volume (low sales), “bonsai” of a campaign.
- Sequoia – On the other hand, we can ask the question, “How large can we grow this business?” With this mindset, we are better poised to act on opportunities to grow a campaign to the extent that it is profitable. The result? High volume, profitable “sequoia” campaigns that dominate the competition.
At Forthea, we aim to grow all of our clients into the profit-driven sequoias of their industries. To find out what we can do to grow your business, plant the first seed.
Photo courtesy of Flickr.com user henryalien.