Performics, the search marketing division of DoubleClick, has thrown a new metric into the mix, designed to track and benchmark the overall marketplace activity of search marketing campaigns.
The new cost-per-keyword (CPK) measurement is a composite of the individual measurements of keyword price, end-user demand and campaign size. The idea behind adding this tool to the kits of metrics already used in search marketing is to give a better notion of the “total cost of ownership” of an average keyword at a given point in time, says Chris Henger, senior vice president for marketing and product development at Performics.
Cost per click (CPC) has been and will remain a key base measure of the performance of a single search marketing term, Henger says. In the short term, marketers need to pay attention to CPC. But an overly narrow focus on that single metric skews the search marketing equation by over-emphasizing the supply side, the price that the market sets for that individual keyword—in other words, what the highest bidder is willing to pay for that term on a given day or hour.
But that ignores several realities about the search marketing. First, SEM campaigns often consist of thousands of words, not single terms. Second, SEM has matured to such a level that many marketers often find it more cost-effective—better for their return on investment (ROI)—to opt for something below the first position on a term, at least as long as their listing appears above the fold on the results page. Therefore, what the top-ranked advertiser has paid is that much less relevant to calculations about their marketing effectiveness.
Third, and probably most important, figuring the CPK for the Performics 50 combines both the price paid for keywords in a campaign and the amount of traffic—or demand—that they bring with them. In other words, the metric looks at both the cost of a keyword and the cost of the clicks that it generates. This makes a difference, Henger points out because a marketer who buys one click that costs $1 and five clicks that cost 50 cents each actually spent more on the less expensive keyword.
Volume is an important part of owning a keyword, since an increase in click volume—such as might occur during the holiday shopping season—will spike the cost of using that keyword, whether or not other competing bidders drive up its bid price.
The Performics 50 is a basket of the 50 most stable campaigns among the 150 or so major search marketing clients on Performics’ roster in a given month. At present, Performics plans to publish the CPK results for this basket to the entire search industry on a quarterly basis, while sharing the monthly breakout with Performics clients.
“Our objective in putting this forth was to put out the industry a representative sample of what a real search program looks like that has been actively managed over time, so that it can serve as some type of indicator of what’s going on within the search marketplace,” Henger says. “It’s not about the market, which is measured by total search spend and average CPCs. This is really an indicator of the metrics that might be interesting around a representative search client.”
The Performics 50 and the CPK derived from it are calculated in several steps. First Performics identifies those campaigns among its clients that are being actively managed and have been in existence for at least four months, since new start-up campaigns typically show a different growth pattern as they gradually find their main keywords. By nature, most of these campaigns will be seeking direct-response results rather than brand marketing. The verticals from which these campaigns will be drawn will include both retail, where direct sales are the target, and entertainment, financial services, telecom and travel, in which marketers usually are aiming their search efforts at amassing online registrations, subscriptions or bookings.
Performics will also seek out the campaigns that have been closest to the average in activity for a given time period, eliminating both the least and the most active as not representative of average search behavior.
The CPK metric, derived from the Performics 50, will let advertisers measure their performance compared to an imaginary average competitor, in the same way that e-mailers use industry open or delivery rates to benchmark what’s better (or worse) than average performance in getting their messages read. This is especially important in a field that’s growing as fast as SEM, and with so much seasonal volatility.
“If you’re the chief marketing officer of a big search spender and the guy who’s running your search program tells you that sales are up and he’s meeting ROI objectives, if you’re smart, you’re going to point out that Google grew 25% during the same period,” Henger points out. The rising tide of SEM activity as a whole may be lifting those sales; you want a more substantive yardstick against which to measure performance, both for your company and your nearest competitors.
“We intended [the Performics 50] to serve as a baseline metric for our clients,” Henger says. “Then we debated whether or not to put this before the public. We finally decided that it’s a useful metric. It’s not an optimization tool in itself, but it’s a trending or directional mechanism.”
Henger says a couple of factors led Performics to develop both the 50-campaign index and the new CPK operating metric. “One, we’re proud of the fact that we have 150 clients from which to draw the basket and create a representative sample of 50,” he says. “Two, we’ve been doing [SEM] for a long time and we think we understand the dynamics. And three, we’re proud of the fact that we’ve had the guts to put out our own metric and say, ‘This is the way you need to be thinking about search marketing.’”
But as always, the new metric merely gives advertisers the ability to ask new and hopefully more pointed questions. Just knowing one’s CPK doesn’t answer the question, Are you selling more? If an advertiser isn’t converting as well as its competitor, or remains mired in third position in a three-player market, they may have to opt for a higher CPK in order to improve their results.
For that reason, Henger holds open the possibility that the Performics 50 may someday include other metrics beyond CPK. “Sales and overall ROI are always going to be as important as CPK to an advertiser looking to gauge performance,” he advises. “Right now, the Performics 50 index allows us to take a directional look at where search is going in terms of a couple of interesting metrics, most notably total average cost per keyword. Down the road, we may decide it’s important to measure the index against overall sales, too.”