Have you ever wondered how many people actually click the paid ads on webpages? Just ask a company like Google who counts around 97% of their revenue from paid ads.
Learning how people search on the web is key to building a successful business. By choosing the correct ad words and using “high commercial intent queries”, you can target the specific type of people who want to buy your product, increase your “click thru success rate”, and grow your business.
Larry Kim is the founder and CTO of WordStream, and provides internet consulting services as well as leads a team that develops and sells software for search engine marketing automation. He is the guru of helping businesses cherry pick the best keywords to target ads that fit exactly what they’re selling.
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Rich Brooks: Hey everybody, today I am very excited, we’ve got a new topic we’re going to be talking about on The Marketing Agents Podcast, something we haven’t touched on before, which is paid search. I got a recommendation that I should talk to Larry Kim today, so that’s who we’re bringing on the show. Larry founded WordStream back in 2007, he bootstrapped the company by providing internet consulting services while funding/managing a team of engineers and marketers to develop and sell software for search engine marketing automation. In August of 2008 he secured a 4M Series A investment – don’t even ask me what that is but it sounds super important – from Sigma Partners and a 6M Series B investment from Eagan Managed Partners. Today he serves as company CTO and is a contributor to both the product team and marketing teams, he writes for a number of different online resources around search engine optimization – including Search Engine Land – and he also practices photography in his spare time. Larry, welcome to the show.
Larry Kim: Awesome, thanks Rich. And just in case anyone’s curious, 4M means 4 million and 6M means 6 million.
Rich: See, I’ve already learned something, Larry, and I haven’t even gotten to any of my official questions. I’m loving this. So that kind of gives us a background of where you were, but how did you, yourself, get into paid search?
Larry: Paid search is so addictive. So I came out of it from the point of a business operator. I was selling software, and software is really interesting because once you’ve built it you can sell as many as you can and it’s all profits because you’ve already spent all this money in building this offering. So early on, this was like 10 years ago, I was working at a software company and we built this software product that was XML editing software and the idea was by using search marketing we could get this software in front of millions of people, so we would spend a million dollars on paid search engine every year. That was a lot back then. And that we could connect with people all over the world, right at the moment they were needing this software. And they would just download the thing and just buy the thing and that company went from 1 million to 3 million to 10 million in just a couple years, and it was all because of internet marketing, and I was hooked.
Rich: Alright, sounds good. Now it sounds like you were successful , but I know that when I talk to a lot of small business owners, they always say, “Listen, I don’t need to see those ads on the right hand side, I never click on them, I’m sure my customers never click on them, so there’s no point in doing paid search.” What do you say to those people?
Larry: Well someone’s clicking on them, I mean, Google just made $50 billion last year and is the biggest company. So clearly is you assume an average click price of $.50 or something like that, clearly it can’t be true that nobody is clicking on those ads, as 97% of their revenue that’s coming from ads. I would say as for your own kind of searching behavior, the click through rate on ads varies greatly depending on the type of search being executed. So what you’ll find is if people are searching for informational keywords like “Who won the battle of 1812?”, or something like that, that’s someone who’s looking to learn something. People are generally not going to be clicking on ads, in fact, Google doesn’t even bother showing ads. But if you have a different type of search called a “high commercial intent query” – that’s where someone is looking to buy something or research a purchase, like stainless steel dishwashers – then what happens is Google will almost show no organic listings at all. If you look at the search engine results page it’s going to be all pictures of dishwashers and the people will click on them at a very, very high rate. Around 60% of the clicks on high commercial key words go to the ads, why, because people were looking to buy something to begin with and so they’re more likely to be open to clicking on ads, so it depends on how you target your ads. Don’t be targeting types of keywords where people aren’t looking to buy things, but rather make it helpful and help people find exactly what your company sells.
Rich: Alright, so as we’re thinking about our products and services and what we want people to buy from us, we should be thinking about it through that lens of high commercial intent. Is that what I’m hearing?
Larry: Yeah, it’s really a loser’s game to be…say you’re a web development company in Portland, Maine.
Rich: That’s a great example, did you just come up with that?
Larry: So it would be a losing strategy to bid on the word “web development”. Why? What’s the intent of someone searching for web development? Well, maybe they’re looking for jobs or maybe they’re looking for software. It doesn’t necessarily mean that they’re looking to buy your services. Think of the intent of someone searching for a keyword like “top web development shops in Portland” or “hourly rates”, very specific keywords that clearly the intent is to retain or hire some kind of webshop for some kind of product. Those are the keywords you should be targeting. You should be very picky first of all, because there’s 3 billion searches on Google everyday and the goal is not to try to get all of them, just try to get 1 or 2 or 3 or 10 that are exactly what you’re providing. You’re paying for every click, so you want to make sure that the ones you pay for people are ready to buy, that’s where you’re going to get the value.
Rich: Alright, so that all makes a lot of sense to me. The other concern I think a lot of small business owners have is “How can I compete against giant, national companies?” Maybe I’m a small insurance company versus Geico, maybe I’m a small pizza place and there’s a Papa John’s in town, they’ve got millions or billions of dollars to spend on these ads. How can I possibly compete against them?
Larry: So the good news for small businesses is that AdWords is a very unusual advertising venue that gives a lot of advantages to smaller businesses over large businesses. So think of a company like ebay, you’d be surprised even though they spend hundreds of millions of dollars on ad words over the years they manage their campaigns very, very poorly and aren’t able to see great ROI whereas a smaller, more nimble, aware small business owner might be able to carve out a niche and do very well. So a couple of ideas that come to mind here: the first has to do with being more picky, so remember, you’re not trying to show up on all the keywords across the entire world, just around your neighborhood. So you’re this Portland web shop, you know you’re best customers are all within a mile radius of where you operate so you can use these targeting capabilities to be very, very picky, such as time of day parting. So like, I’m only going to show ads when the office is open and shut them off on evenings and weekends, or something like that. So you could do location targeting. I’m only going to target the city and maybe one community over, or something like that. You’ve got to be really, really picky and just cherry pick the best keywords that are exactly what you’re selling. Do you follow?
Rich: Absolutely, that makes a lot of sense. So I guess we’re talking about targeting, we’re talking about day parting, which is we’re going to focus on specific times of day, and different businesses may do better in the evenings or do better on the weekends or do better during the day . Also, location – the geography – but how do we choose the right keywords for us? I mean it’s easy for me to take a guess that people might be looking for “wordpress”, “website development”, but how do I actually know that those are the words? What are the tools or tactics that we can use to find the right keywords for us?
Larry: So the starting point for this would be to use something called a “keyword tool”, and AdWords provides something called the Google keyword planner, and that’s where you would put in some seed terms like “web development” – which is very informational in nature – and Google would provide expansion of that list of possible niches that have greater commercial intent. Now, that could be a starting point, but you still don’t really know whether or not those are great keywords for you until you try them out. And so there’s this kind of iterative, continuous, ongoing nature of search engine marketing which is very different that other forms of marketing like yellow page advertising or putting out your ad on a billboard somewhere where you don’t get a lot of direct feedback as to the effectiveness of that advertising channel. In search marketing you’re going to get instantaneous feedback, so as soon as you upload those keywords in the ad you’ll find out, “Oh, this has a click thru rate of 3% or a click thru rate of 10%, and you’ll be able to tell what’s resonating, what’s not resonating and what’s working in terms of your profitability goals and what isn’t. So it’s kind of this iterative process that takes a little bit of time and energy to figure out but it’s definitely worth it.
Rich: And we’re doing this by taking a look at our Google AdWords reports and kind of seeing which of the ads are getting good click thru rates or poor click thru rates, and then getting rid of the bad ones or tweaking them and then putting more money towards the ones that are performing well, I assume.
Larry: Yeah, so in search this is called “ongoing optimization” where there’s maybe a dozen categories of types of optimization and work that you could do, like for example trying out different keywords which is an idea that you suggested earlier. That’s a great idea because there are so many different ways that people can be looking for your services that might be worth trying out other ways you hadn’t initially thought of. It could be like competing brand names, it could be all sorts of different keywords that are worth trying out. Another one is called “bid management” – remember, this is like an auction – generally there’s more than one company willing to bid on a keyword, and so Google needs to figure out what order to place the competing ads, so some of that has to do with your bid, specifying how much you’re willing to pay for those clicks. So you have to be really strategic in thinking about what’s the true value of this keyword if it has a lot of high commercial intent and good alignment with your business, perhaps then you might be willing to bid higher and get more prominent exposure on the search results page. If it’s perhaps slightly tangential to your business and not your bread and butter, then maybe you would be wise to reduce the bid amounts. So there’s bidding, there’s ad tech optimization where you try out different offers, there’s landing page optimization where you try out the different types of offers as well. There’s all sorts of things, but there’s really a dozen or so different knobs that you can turn to tweak and optimize your campaigns.
Rich: Ok, that’s great. So, a couple questions that came up while you were talking. One is, you mentioned maybe on a competitor’s name, I hear this question all the time and I don’t know the answer. What is the rule when you run a burger joint, using something like Burger King or McDonald’s in your ad? Is that not allowed or is that something that we can take advantage of?
Larry: You can trigger your ads based on competing trademarks. So if someone searches for some competitor of yours, Rich, you could make it so your ads show up. But, it is forbidden from using any trademark names in the ad copy without their permission, and it’s probably unlikely that they would want to give you permission. But where you can get permission is if you’re a partner of theirs. So maybe you’re the local IBM authorized web company.
Rich: Sure, if we’re a Microsoft partner or whatever that might be.
Larry: Then they say, “Go ahead, use our trademark”, because you’re authorized to do so. You can’t use it in the copy without their permission, but, you can do it by triggering your ads off it. You can talk all about your business without mentioning them and that’s perfectly legitimate.
Rich: Ok, good to know. Now the other question I had is: I see some people who go do a search on a hotel somewhere, and you see them as the sponsored ad, but you also see them in the local listings and you also see them at the top of the list – is there value if you’re already crushing it in organic and local and also be bidding on your brand names?
Larry: I think so. Because there could be other companies bidding on your brand names, too. This is more of a defensive strategy, trying to play defense so your competitors don’t steal your traffic.
Rich: Or at least make them pay more to steal it.
Larry: Sure. That’s a nice way of looking at it. Probably that’s not a great strategy of that’s the only thing that you’re doing – bidding on your own brand terms. Search is really interesting in that it allows you to connect with people who know what they’re looking for, but don’t know where to get it from. So if you’re only targeting your own brand term, then you’re only targeting the people that already know you, which is losing a little bit of the power of search marketing which is really the ability to target people who didn’t now you. So for that reason I recommend an allocation of 10-20% of your overall budget – of $100 a week or something – make $20 of that towards branded searches, or something like that.
Rich: Ok, that’s great. Now you mentioned you might want to pay more for some phrases that have a high commercial intent versus just informational. Now a little bit of research that I’ve done says there’s something called the “AdWords quality score”, and that that can impact – I believe – what it’s going to cost us to get higher up in the rankings within the paid search. Can you explain that in a little bit more detail or maybe clarify what I just said?
Larry: Sure, “quality score”, it’s an algorithm. So the entire Google system of ads is built on one algorithm, it’s called “quality score”. What the algorithm does is it decides which ads to show in what order. Because remember I was saying earlier there is usually more than one competing advertiser wanting to appear on a lucrative, commercial, high intent query. So they need to figure out what order to place them, and also how much to charge advertisers if a user clicks on that ad.
Now remember, it’s free to show the ad. The advertiser only has to pay if someone clicks on the ad. So the amount actually has nothing to do with the amount you’re willing to bid, and has everything to do with what other people are willing to bid and the quality of your ad.
Without making things too complicated – basically quality score – it’s a score of 1-10, 10 is amazing, like this is a great keyword and a great ad that people are clicking on, it’s clearly resonating with people.
A score of 1 out of 10, that’s the worst possible score. That means you picked a ridiculous keyword that has nothing to do with your business and people are just ignoring it. So the reason why you’d want a high quality score for the different keywords and ads for your account is threefold.
First of all, Google doesn’t even bother showing ads with low quality scores, so they’ll just turn them off, they view them as an annoyance so why bother annoying users with ads that nobody clicks on. They don’t make any money and it’s just clutter for the users using the search engine. So a low quality score means you didn’t even create an ad campaign because Google just shut it off.
A couple of other reasons, one has to do with the cost per click that you pay for your ads. What you pay is inversely proportional to the quality of your ad. So a keyword with a 10 out of 10 quality score on average would receive a 50% discount off of your maximum cost per click. A 1 out of 10 quality score would pay a 400% penalty, so they’d be paying 4 times as much on average for a keyword. That’s to incentivise advertisers to create ads that make sense as opposed to cluttering Google with all sorts of silly ads that make no sense.
And then the last reason is because of the positioning. It’s a very unusual ad auction. It’s not like eBay where the winner gets that top spot, whoever bids the most. It has to do with the quality and the price that you’re willing to bid, and it’s the product of those two factors that results in the ordering of ads. And the takeaway is that a small business with a low cost per click bid amount could actually take the top spot away – if they had a high quality ad – if they were competing against a bigger company that had a higher bid with a lower quality ad. So that happens all the time.
Rich: Ok, so a couple questions, just to summarize what you said if I’m understanding it is: to succeed at pay per click ads, what we want to think about is finding out high commercial intent keywords, being willing to maybe pay a little bit more, writing ads that get clicked on – because the more higher the click thru rate, Google’s actually going to give us a discount because they want to show those higher up. And then also think about what time of day and geographically where we want to show these ads, and then just managing these ads so we get rid of the clunkers and focus on the ones that are really performing well. Is that a good summary of how we should be thinking about paid search management?
Larry: You definitely have a great overview there, that’s like a great, high level view I think.
Rich: I’m just stealing from you, man. So thank you. So one question that people always ask me is, “How do you get in the search ads above the search results, as opposed to on the side?
Larry: Oh, so that has to do with your ad quality again. If you meet a minimum threshold for ad quality – and by the way, when I talk about ad quality, that’s computed based on the click thru rate of your ads relative to the expected click thru rate of an ad in a similar position. So ads in position 1 at the top of the page have an expected click thru rate of, say, 6%. If you can beat that, then you have an above average click thru rate. Do you follow? So ads that are high quality that beat the expected click thru rate for a given ad spot are eligible to appear bigger and more prominently above the search results pages. And that happens a lot of times where there are commercial keyword searches because people are more likely to click on ads. I think what you would find if you did a bunch of searches on various things on Google for informational queries, you’re less likely to see those types of ads showing up above the organic search results because they’re not typically clicked on, so they tend to suffer from lower click thru rates. So Google’s not going to bother people in such an obtrusive way.
Rich: Alright, sounds good. One other question that I had that came up is a lot of times when people start working with an agency, the agency will tell them, well, you really need to be spending at least $1,000 a month to see any sort of results, or see the results you want. And that always seems strange to me, I mean the bottom line is, why do we need to spend a minimum amount of money if we’re basically buying ads that are being bid upon? Why does there have to be a minimum involved to get a certain type of result from paid search?
Larry: Well, why is there a minimum bid?
Rich: Not a minimum bid, but why are agencies saying you really need to be spending $1,000 or $3,000 or $5,000 to get any sort of results, and anything less than that you’re not going to see any kind of results?
Larry: Well, from the agency perspective, you’ve got to understand that they bill as a percentage of ads spend typically. So, 10% is typical management fee, so if you’re spending $1,000 a month the management fee would be typically around $100 a month, and maybe from their perspective you might not be worth their time if you’re spending less than $1,000 a month, because maybe they make $50 off of you every month and that’s not an interesting business for them. Maybe what you’re hearing, there could be a result of how agencies charge, because rather than that it’s hopeless to be successful in AdWords with a lower budget than that because there’s definitely millions of advertisers spending between $10 and $500 a month – and just being very picky, not going after everything – just going after exactly what they’re selling and being successful.
Rich: And there’s nothing wrong with making money. So from an agency standpoint, it may just be “for us to work with you, there needs to be a minimum.” But if somebody were to want to take it on their own, if some small business owner says, “Well I’m just going to run this myself”, then he or she could certainly do it for less than $1,000 a month.
Larry: Oh, absolutely. I’m saying there’s million and millions of advertisers, probably like 1.6 million advertisers that are spending between $10 and $500 a month.
Rich: Alright. We’ve talked about how to create better ads so far, but once we have the people clicking on our links, where should we be sending them? And I know it’s called a “landing page”, but what can we do to improve the conversion rates on these landing pages? Because obviously in organic search we’re paying for these leads, we want to make sure that a high percentage of them convert. Do you have any suggestions on how we can improve our landing pages?
Larry: This is a crazy suggestion, Rich, but one idea is to get rid of them.
Larry: Just get rid of them entirely. Landing pages are so annoying. You get people to the landing page and then maybe it’s like 3 or 4 or 5 percent of them convert, which means that 96, 97 or 98 percent of the people who visited that landing page didn’t convert. So that’s pretty annoying, you just lost the lion’s share of them. So nowadays what’s happening is that by 2015 more searches are going to come from mobile devices – like smartphones rather than desktop searches – so one of the cool things that you can do in paid search is you can eliminate the landing page altogether for mobile searches. So you can make it so that if someone searches for ‘emergency locksmith’ on a phone, you can show your ad and make it so that even if they click on the headline of your ad, rather than direct them to your website – which is annoying because then you’ll lose 19 out of 20 of them – you can just pop up a call button and have them call you directly. And then once you’ve got them on the phone, you can get their information, they’re a hot lead, you can talk to them right away. Did you know that if you wait like an hour or two to call people back, the likelihood of closing is like…the half life of these leads is just a few hours, so you’re best off just getting rid of the landing page altogether. There’s a setting in the AdWords and Bing ads setup where you can force people from mobile to call you rather than visit your site.
Rich: Alright, well that works for mobile, and I did want to get to mobile, so maybe we can come back. But if we’re talking about traditional desktop searches at this point, are you suggesting that we get rid of landing pages altogether, and if so, what do we replace them with?
Larry: No. So on desktop they don’t necessarily have the ability to call you directly unless you get skype installed, but it’s a little more murky. I think you would then send them to a typical landing page.
There are all sorts of best practices around landing pages to make things go better with a typical conversion rate of around 2-3%. We found that there’s within any industry the top 10% of companies have landing pages that are 3-5 times higher than the average. So when we look at thousands of advertisers across B2B or consulting services or whatever, there’s always the top 10% of advertisers within any industry have conversion rates of 3-5 times – I’m talking like 10 – 20% conversion rates – which is 3-5 times higher than the average 3%. And so in terms of looking at those landing pages and figuring out what it was they were doing differently, a lot of it had to do with that they had very unusual offers.
I’ll give you an example, like Wordstream, so we sell paid software, we used to offer a free trial of our software, after about 3 years of doing that and struggling with 2 or 3% conversion rate, we changed the model to a free account audit. So it was a software that downloaded some information from your AdWords account instantaneously – 20 seconds to download – and it generated a report card of your AdWords account to show you how you’re doing relative to competitors. So by just making that small change in the offer, we ended up 5 times increasing the conversion rate and those gains have steadily held over time. It’s not transient, it’s persistent.
Radically changing the offer – people weren’t looking to try the software, they just wanted to know how they were doing in paid search – so we ended up changing the offer to be something more compelling. People get in these ruts where it’s like, “I’m a web development company, so what am I going to offer them?” Maybe it’s like a free consultation or something like that. That’s what everyone else does. Are there other crazy offers that you could come up with if you put on your thinking cap? That’s the kind of things that make a difference.
What doesn’t make a difference that much is just changing the font colors or changing the button sizes and all those little…I mean that’s important stuff, but it’s just kind of minimum required effort. If you really want to double or triple your conversion rates, you need to think of bigger changes.
Rich: Bigger changes, that sounds like really think about what your customers are going to be most motivated by. It sounds like you discovered the secret sauce for your own business.
Larry: Right. The thing about that, one way to figure out that answer for your business is just to have a little field on your “contact us” button that says something like, “And what were you hoping for us to help you with today?”, and see what they type in. And we were really surprised to see that almost none of them were looking for a paid search trial software, they were looking to find out how they were doing in search. We got all sorts of different answers but what they were looking for wasn’t aligned with the offer that we were providing.
Rich: Right. Excellent. That’s good information. Now you mentioned the change in mobile. Are there any other ways that mobile is changing paid search? Or is the big focus that now we can do these almost like call buttons right now within paid search?
Larry: So, I think mobile makes paid search worth a lot more because the intent is stronger. We were talking earlier about commercial intent, so if you’re researching a vacation or something on your desktop, there’s definitely some sort of commercial intent there. But if you’re searching for emergency locksmith on your phone, then there’s even greater urgency. That means you’re locked out of your house and you’re trying to get in. If you’re searching for emergency roadside assistance, that means you need help now. So first of all, the key is to use it because there’s higher commercial intent – generally speaking – on mobile because you’re doing the search on your mobile device because you need something now as opposed to it’s nice to know. That’s typically the pattern. Another couple tips here, so that implies that you should not only opt in to mobile but also perhaps bid differentially – meaning value – you can assign higher maximum cost per clicks to your mobile traffic rather than your desktop because it’s likely to be more valuable. There’s all sorts of other tricks around the call extension we talked about…how much time do you have?
Rich: Well no, I think you definitely gave us some things to think about in terms of that. I did want to start to wrap things up, but I did have a question about one of the things I think we’re all afraid of is just losing money on paid search. What are some of the biggest mistakes you see small businesses make in paid search and how can we avoid them?
Larry: Well the biggest mistake is in the keyword targeting, hopelessly broad and unspecific. There was this company I was working with who sells popcorn machines and he’s like, “You know, we’ve got to bid on the word popcorn.” And I’m like, “Wait a minute, that’s just hopelessly broad.” Maybe they’re looking for popcorn seeds or, it could be anything. So you have to think of it as cherry picking rather than… unless you’re a Geico and can afford to buy up everything – which is not your typical small business – you should be thinking like a cherry picker which is to be very, very picky and only pick the stuff where if this guy searches for this, that means they’re looking to buy my product or my service right now. And that has to do with keyword targeting. Beyond that, the 2nd biggest mistake that small businesses use is the failure to optimize. You should think of it more as kind of a weekly or monthly activity where you go in and you view the campaign performance of your advertising dollars and then make the necessary course corrections, For example once every week spending a little bit of time there and continuously making things better. Nothing that was great ever happened overnight, and anything that’s great is worth working for and that’s also the case in paid search.
Rich: That’s great. I know that I asked a lot of questions that I thought were interesting, I know a lot of people are going to want to ask more questions and dig even deeper. Larry, where can we find out more about you, your company and also paid search in general?
Larry: I hang out on Twitter a lot, the handle is @larrykim. If you were to add me, I’d probably add you back, and then you could shoot questions over there. Another really interesting resource that we have is PPC University. That is starting with the basics and going all the way to advanced topics of paid search strategies and concepts. That’s www.wordstream.com/learn. That’s the free PPC University with very detailed information on how to succeed at paid search.
Rich: That’s fantastic. And I will of course as always have all those links in the show notes. Larry, thank you very much for your time. you’re very generous with it and I appreciate everything you shared with us today.
Larry: Thanks, Rich.
- Get your tickets for Agents of Change 2014!!
- Check out Larry Kim’s website.
- Take a look at Larry’s new company, Mobile Monkey
- Connect with Larry Kim on Twitter.
- Learn more about PPC University.
- Check out the Google Keyword Planner.
Generating Leads like the Tesseract Generates Power