Economics of Search Marketing

Early in June, Borrell Associates published its “Economics of Search Marketing” report. It discusses some of the challenges of search marketing for small businesses, both for the advertiser and the service provider.

One particular quote stood out to me:

This [margin to the service provider] changes with the higher levels of spending by the advertiser. Our model, based on interviews with advertisers and resellers, indicates that at the highest levels of spending – above $50,000 per month – an advertiser will see 89% to 94% of the expenditure applied toward keyword purchases. Conversely, those spending the lowest amounts see less than half their dollars used to purchase keywords.

These numbers certainly agree with what I’ve seen in the industry, and they bolster something I’ve been saying for years: if you’re company or market do not support a budget of at least several thousand per month, you’re better off not outsourcing your paid search campaigns.

Outsourcing of marketing campaigns results in increased overhead and expense. If you’re spending $5,000 or more per month with Google, Yahoo and Bing, it might make sense to avail yourself of the expertise a paid search agency can bring.

However, for many locally focused advertisers, the keyword volume for your market might not support a budget of more than a few hundred per month. In these cases, the overhead of outsourcing the paid search management makes doing so not viable.

You need to manage the campaigns yourself, although training and outside assistance might be needed on the front end.