“What if Search Investment Could Be
Managed As a Profit Center?”
Google asks this question on their blog about cutting-edge Adwords insights. At Root Deeper, we feel this points to something most agencies do wrong. They treat online spend as a cost, not an opportunity for generating additional profit. This trap is natural as online spend differs profoundly from the advertising of the previous hundred years, which many professionals grew up with, and there are habits that are hard to break. Many ad agencies take advantage of these habits and make money doing a poorer job for clients than we feel they should. This is why we feel, at Root Deeper, that “an informed client is our best customer”. We want to focus on clients who understand the power of what we bring.
A quick post from Google on PDM http://adwords.blogspot.com/2014/05/the-profit-driven-marketer-setting-new.html
With the advent of Big Data and Digital Analytics, the online marketing industry has established the ability to track the impact of different marketing activities against Key Performance Indicators such as sales, lead generation equity, and customer response to display ads.
At the same time, most advertisers and agencies are still in the “old model”. Firms allocate budgets for advertising, and hope for the best. Ad budgets are fixed costs and not tied to profits based on the spend. Some ad agencies like this, as it means they have predictable revenue with minimal accountability.
Root Deeper is a different kind of company. We are an advocate for your business, and our success is your profit. Our focus is understanding and establishing systems to track profitability of marketing investments and managing marketing activities to achieve business goals (increased sales above a certain profit level, increasing ROI for a given sales level, etc.).
The notion is that we don’t want our services to cost you anything. We want our services to MAKE YOU MONEY. Our fees should be covered by profit from the activities we manage, with you receiving a return on that investment in addition to what you spend.
That isn’t to say there aren’t any projects that have objectives other than immediate sales (EG establishing KPI and tracking systems, analyzing existing data, developing and deploying brand awareness and customer education efforts, building “assets” such as social connections, etc.) but it is always our goal to add value beyond cost. The most apparent example of this is in Profit-Driven Marketing.
Profit-Driven Marketing is different than Cost-Allocation Marketing (which most agencies do, though they don’t call it that):
Profit driven marketing (PDM):
1.Builds, and refines, systems for tracking value add (EG Return on Ad Spend/ ROI, profit per customer, value of sales leads vs spend etc.)
2. Focuses on profit, and business goals, as the drivers for campaign decisions rather than simply “spending”
3. Is flexible and scaleable. Many of our clients are interested in acquiring as many sales as they can, as long as each sale is profitable. Successful PDM has the goal of INCREASING spend as long as ad spends are PROFITABLE. The ad costs are paid by the profits, and the business increases overall profit
4. Requires more up-front business analysis to set correct KPI, and involves a continuous improvement cycle
5. Has a higher management price-tag but creates greater accountability and scaleable profit potential
Increase in ad spend, based on PDM, result in increased profit overall. Ad spend is treated as investment, with expectations of ROI.
1. Is appealing because it is a “set it and forget it” strategy. Companies spend their budget, and report on the existing indicators
2. Relies on fixed budgets and traditional advertising metrics (these metrics are interesting but not deeply-rooted Key Performance Indicators that more closely track with profit and other business goals)
3. Requires only basic skills to implement. No business analysis is required, little effort or talent is required as KPI are not analyzed and defined, and no continuous-improvement process is necessary as it’s a straightforward matter of just spending money on ads
Increase in ad spends produce cost. Money is spent, not invested.
To learn more, here is a perspective from Think With Google on this crossroads. It’s more than you may need to delve into. You don’t have to become an expert on it to know which approach is right for your firm. http://www.thinkwithgoogle.com/articles/profit-driven-marketer.html