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Why a small AdWords Budget is a waste

I’m just payin’ some bills with these ads

A Deadly Pay Per Click combination:

Low Budget + Bad Management + High Markups = Money in the Toilet

In most cases – and underfunded Pay Per Click Budget is a complete waste of money.  Not because you can’t have a successful campaign on any budget, but because of the way that most companies run AdWords Campaigns. When you combine a poorly ran campaign with huge markups and a low budget, you might as well be flushing your money down the toilet because you are NOT going to get any customers from your investment.

Companies that have ridiculous markups don’t usually tell the customers their markup at all.  Most customers are not educated enough to know that Google actually requires AdWords re-sellers to share this information, and that Google goes so far as to warn the small business owner about companies that do not share cost information.  (Google Advertiser Guide)   (Google Third-Party Policy)   (Google Third-Party Policy FAQ)

Three of the biggest offenders of mixing under funded campaigns with poorly ran campaigns and having ridiculous markups are Dex Media, Hibu, and Reach Local.

Pay Per Click Example:

Here is a hypothetical, but VERY MUCH a real world example.  Suppose you are a plumber in the city of Seattle, WA.   The sales rep from a Pay Per Click re-seller tells you that in order to “Dominate” the competition – you need to spend $2,000 per month, in order to “Compete” you need to spend $1,500 per month, and in order to just have a “Presence” you need to spend $1,000 per month.  You reply – “I have a budget of $600 per month”.   The Sales Rep says “Great” and signs you to a 6 month contract @ $600 per month.

Now let’s apply some basic math to this equation:

$600 per month – 40% (their markup*) = $360 left for ads

$360 / 30 days per month = $12 per day

Most clicks come from the word “Plumbing” so that word is “broad matched” in your campaign.  (this means that any time the word “plumbing” is in a search, it can trigger your ad to display.

According to the Google Keyword Planning Tool – as of today (7/9/14), they recommend a bid of $11.92.  That does not mean you will pay that – it’s just the suggested bid from Google.  If you bid $5, your ad probably doesn’t show up, if you bid $50 – your ad will show up – but will cost you way more than you should have to pay.

Someone at home types in “plumbing company, Seattle WA” and an auction is triggered.  You ad shows up in the 4th spot and the cost is $5.

If your Average Cost Per Click were $5** – you could get 2 clicks per day.

2 clicks a day = 60 per month.

60 clicks per month X 1.5% (average conversion ratio – conversion = phone call or contact form filled out)

If you are lucky – you might get 1 conversion.  This may or may not be an existing customer, and it may or may not lead to a new customer – it just means they contacted you.

If you land the customer AND your profit per customer is over $600 – then you got a positive return on your investment.

If not – then you got screwed.

* the big companies have markups as high as 60%
** average cost per click for a plumber in Seattle for the keyword "plumbing" is likely to be way higher that $5.

There is just no way that the small business, with a small budget get’s a positive R.O.I. from Dex, Hibu, or Reach Local.

It is possible to take that $600 and turn it into a successful campaign, but it requires choosing specific “exact match” or “phrase matched” keywords, setting up the campaign to only run during periods of lower competition, and narrowing down the radius where the ad shows to a very specific target.

If you factor in that companies like Dex also send all their traffic to a profile page and not the actual website – the problem get’s even worse.

Are you a customer of Dex, Hibu, or Reach Local?  What has your experience been?