Clicks, Customers, Cashflow, Part 3: Cashflow
– the movement of money into and out of a business
– a prediction of such movement over a given period
Show Me the Money!
“Revenue is Vanity, Profit is Sanity – Cash is Reality.”
Or, put another way – “Clicks are for Vanity, Customers are for Sanity, Cashflow is Reality”.
In “Jerry Maguire” (1996), Tom Cruise suffers an attack of conscience and loses everything, including his highly successful and lucrative career, because of it.
During his moral rebirth, he retains a single client who judges him purely on his results:
Rod Tidwell: I need to feel you, Jerry!
Jerry Maguire: Show me the money!
Rod Tidwell: Jerry, you got to yell!
Jerry Maguire: [screaming] Show me the money! Show me the money!
Rod Tidwell: Whatcha gonna do, Jerry?
Jerry Maguire: Show me the money!
Rod Tidwell: Unh! Congratulations, you’re still my agent.
Although we won’t be screaming down the phone at you, we’re also passionate about your results and profit.
We’re going to assume you are too – although it might surprise you to know how many Client accounts I’ve reviewed where profitability was just not being considered…
Profit is the only outcome I care about for my clients (and so should you).
-They don’t care about how many keywords I added, moved, or deleted
-They don’t care about how many new ads I’m trying
-They don’t care about how many new negative keywords I included, or how many bids I adjusted
-They don’t care what tools I use to get the job done
-They don’t care how many changes or new features Google introduced last year (unlike some Client Managers, I always like it when they do that)
They just care about what they spent, what they earned as a direct result, and that I am continually trying to increase their sales and order values.
Some AdWords advertisers don’t care what they spend because for them it’s all about “Branding.”
Most SMBs have to care about what they spend, and be certain that it is increasing their sales and profits.
I once worked with a high street retailer who had a fixed annual budget for PPC advertising. So even when they were actually making profitable sales, when the budget ran out, they had to stop – even though they were earning money (strange, but true).
I can’t work with Clients like that, because there’s no certainty that anything we do is working, or will last any length of time.
In fact, before I will even manage campaigns for clients, I insist they know their numbers, even if only averages as a starting point.
And it’s the first thing we work through, before getting started on campaign improvements.
Because I work on commission, it’s my pay cheque at stake too.
I prefer my Clients to keep me as their agent – which they won’t if I can’t “Show THEM the Money”.
To do that, we need to find out if your campaigns are running as Profit Centers (which is not what I usually find), or the much more common Cost Center.
And then – how to fix it, for your unique Business…
Cost Center or Profit Center?
ENGINEER: You got it… to retrofit 175,000 units. You multiply that times 300 bucks a car, give or take, you are looking at around 50 million dollars. So, the risk guy, he crunches the numbers some more. He figures out you’ll have one of those fireball collisions about every 3,000 cars. That is 158 explosions.
Maggie Ward: Which is almost exactly as many plaintiffs as there are.
ENGINEER: Those guys know their numbers. So, you multiply that times $200,000 per law suit, that’s assuming everybody sues and wins, $30 million max. See, it’s cheaper to deal with the lawsuits than it is to fix the blinker. That’s what the bean counters call a simple actuarial analysis.
“Class Action” (1991)
The medium- and long-term goal of every AdWords advertiser is for their account to operate as a Profit Center, with unlimited Daily Budgets.
But how can you tell whether your account is a Profit Center or a Cost Center?
Most Client accounts I see are a Cost Center, still running in what I call “Discovery” mode and unsafe to scale up further.
Often, this means going back to the beginning and crunching the numbers before continuing.
What you might call “a simple actuarial analysis”.
Which of the following Case Studies most closely resembles what’s going on in your AdWords account?
The Profit Center:
A Profit Center shows campaigns with:
-a high level of granularity for precise control (the account above has 664 campaigns across 31 countries)
-large ad group, keyword, and ad inventories (97,159 ad groups, 194,666 ads, 272,945 keywords above)
-tracking a regular daily quantity of conversions (around 70 above)
-strong conversion rates
-a large or effectively unlimited daily budget
-accelerated ad delivery
-high ad positions
-100% Impression Share for budget
-up to 100% Impression Share for rank (but subordinated to ROAS)
-strong conversion rates
-aggressive bids and CPCs
The Cost Center:
A Cost Center has Campaigns with:
-a single, or small quantity of campaigns
-a small amount of ad groups, ads and keywords
-no conversion tracking
-zero or a low quantity of daily conversions
-low daily budgets
-Limited by budget status
-standard ad delivery
-low ad positions
-lost impression share for budget
-lost impression share for rank
-low bid prices and CPC’s
“What’s Your Number?”
Bretton Woods: Excuse me?
Jacob: The amount of money you would need to be able to walk away from it all and just live happily-ever-after. See, I find that everyone has a number and it’s usually an exact number, so what is yours?
“Wall Street 2: Money Never Sleeps” (2010)
So we can safely spend money on Clicks and Customers, we need to know “Your Number”.
This is the amount we can safely spend to sell one of your products or services, at break-even as a worst case, because then we can safely continue and optimise the performance for increasing profit.
And to figure it out, we need to know your Return on Ad Spend (ROAS).
Return on Advertising Spend (ROAS)
“A metric used to measure the effectiveness of online marketing campaigns. This formula measures how much gross revenue is realized for every $1.00 of spend on advertising (Dollars Sold / Dollars Spend = ROAS).”
In October 2013, Google announced a new Flexible Bidding Strategy called Target Return on Ad Spend.
Now, using this bidding strategy, Automated Rules, or manually adjusting your bids, you can manage your ad spend in line with what you require to earn back from it.
For several years on my commission-only payment plan, I had been managing Client accounts by CPA bidding (Cost per Acquisition), and this had been working well to keep their campaigns profitable and expand them as much as possible.
But this requires that you know what the CPA value is across your entire inventory, and this can be challenging to figure out.
What’s worse, though, is not knowing what your Customer actually paid you on their visit, since they may buy something of lower or greater value than what they intended when they arrived. Or even multiple items either right away or over a period of time (many-per-click conversions) [as of February 2014, Google has announced an upcoming change to reporting these].
Track Transaction-Specific Conversion Values
By modifying the standard AdWords conversion tracking code to accept a variable from your checkout page, you can pass the actual sales value from your visitor directly back into the AdWords campaign data.
The ROAS bidding strategy can then adjust your bids in near real-time to target sales conversions at what you want to earn back from them.
Even if you have insufficient conversion volume for this approach, seeing the actual sales values returned from conversion events is incredibly revealing, particularly from finely structured campaigns and ad groups.
Google provides comprehensive help to implement this depending on how your pages are coded.
When this is correctly set up, you’ll see the actual dollar value of sales conversions showing in your Conversion Tracking tab:
You’ll then be able to see, optimise, or eliminate wasteful keywords, ad groups, or campaigns to your target ROAS by selecting these additional columns in your campaign display:
When I recently studied a Client’s Product Listing Ad campaign data, I was startled to observe a sale conversion with these statistics:
-Click costs of as low as $0.01c
-CTR of up to 100%
-Conversion rate of up to 100%
-Conversion cost of just $0.01c
-Return on Ad Spend (ROAS) of up to 11,197%
This can be achieved by building AdWords Product Listing Ad campaigns with a fine structure and individual ad groups per product ID.
Some agencies claim this is the wrong practice, but I disagree!
When you are managing your AdWords campaigns to a defined target ROAS based on your margins and advertising spend, you can truly “Show Me the Money!” to your Client, your boss, or your accountant.
Thanks for reading!