Matt Lawson, Director at Google for Performance Ads Marketing, wrote a blog post in May 2014 about a new idea at Google. He also included a Google document on profit-centric marketing.

The links at Google are:

Summary of Google’s Strategic Guide

  • Google points out that online marketing also creates offline sales. They write that four online sales will produce an additional offline sale, so there is a 1.25X multiplier. For example, 4 online sales X 1.25 multiplier = 5 sales. Or 100 sales X 1.25 multiplier = 125 sales. (See p. 5.)
  • This means if if a marketer looks only at the Adwords metrics for CPA or CPL, those additional sales are not reported, which means the account is under-reporting. By sticking to lower budgets, the business loses additional sales, revenues, and profits.
  • Google also points out ads at the top of the page get the most clicks (and most sales) (page 8, last paragraph.)
  • Thus Google argues that marketers should abandon CPA and CPL. They should increase budgets to get their ads to the top of the page. They should aim for the maximum number of sales and then apply a 1.25X multiplier to assume/estimate the additional sales.

My Comments

Google makes a good argument, but it’s based on several significant assumptions:

  • The business must have offline sales. If there are no offline sales (in other words, the business doesn’t have shops), there won’t be an additional multiplier. Thus the argument doesn’t work for a digital pure-play website (where all of the transactions occur online).
  • The strategy is for SMB starting at several million in annual revenues up to several hundred million. Micro-companies don’t have the resources (staff, expertise, tools, budgets). Billion-dollar companies work in an entirely different way.
  • The 1.25X multiplier is an assumption by Google. Perhaps it’s an average from several businesses. Google doesn’t go into detail to document how they arrived at this number (on p. 5, they mention an incrementality study, but they don’t make it available.) Is it 1.25X for small businesses with five shops? What is it for a business with 1,000 stores? What about a nationwide company with 30,000 locations? What about a global enterprise? What about the price point? Is this based on $25 B2C products? $200 products? $10,000 products? $50,000 cars? What about B2B? There are no details on this multiplier. It could be 0.01X, 0.5X, 1.25X, 5X, or 25X. We have no idea. With their vast data, Google could  publish a useful table to show the multiplier effect for various types of business, the size of business, and other parameters. As it is, very few marketers could go to upper management with “well, Google says it’ll be 1.25X so we should increase our budgets…”
  • A cynical reaction to the strategic guide would say Google is telling advertisers to ignore metrics and just throw money at Google. It’s bad enough already when the vast majority of advertisers don’t know how to track conversions or have any idea how to measure CPA, CPL, LTV, or other KPIs. Google’s contribution to the field of marketing was to introduce the idea of metrics-driven marketing. The ability to measure clicks and conversions down to the penny allowed us to make rational, calculated decisions.  Google is moving away from this.
  • It would be much better for marketers if Google were to publish useful, accessible material on how to calculate KPIs. These should be tailored to the different kinds of business.
  • There are additional KPIs that can be calculated, but Google has never discussed these. I’ve been advertising with Google Adwords since it started in 2002; I manage one of the oldest Adwords accounts at Google. I’ve managed dozens of accounts that range from tiny mom-and-pop businesses to global enterprises with budgets in the millions of dollars. I was on the Adwords Advisory Panel for a number of years. I’ve worked with many Google Adwords account managers. I point out all of this to say that in all that time, I’ve heard extremely little from Google on how to manage accounts to CPA/CPL. The people I’ve met at Google don’t know how to do this themselves.
  • I think it’s a good idea to use the idea in Google’s document. It makes sense. However, you will need to test very carefully to discover the multiplier for your business. You should already actually know how to calculate the KPIs and be able to use them to manage accounts. By knowing that, you can then test the multiplier theory. Otherwise, you’ll just throwing money out the window.

Notes

Minor error in the table on page 9: In the column for Total Value, the second number is $4,50 (sic). The correct value should be $8,250. (See, Matt? Someone actually read this 🙂