The Efficiency Frontier and How to Reconcile Conflicting PPC Metrics
Published: July 16, 2014
Author: Joe Stanton
In PPC advertising, a client will often set two or more diametrically opposed goals. “We are going to double-spend this month, but try to keep CPA the same.” The role of the search marketer is to acquiesce to these demands and wage war against mathematical relationships with account optimizations. The ultimate goal being to increase efficiency, whether that is through return on ad spend, cost-per-acquisition, or whatever performance metric the client decides to focus on.
No matter what changes and optimizations are made to an account, there will always be a push and pull from the operational trade-offs of opposing metrics. Luckily for us, we can graph these relationships as a thought exercise to better understand how to make improvements on all fronts.
The Efficiency Frontier – What Is It?
Let’s take two metrics and look at their relationship more closely: cost-per-action and conversions. If you hold everything else constant, CPA will increase as you push bids and spend to obtain more conversions. This relationship is driven by market competition from other companies.
Taking a page from Google, let’s say your client sells chocolate bars online. If you could dive into the search accounts of the strongest competitors in the search space, you could graph the relationship between the numbers of chocolate bars they sell vs their CPAs. It might look something like this:
If you draw a line through all of the competitors with the highest number of conversions for a specific CPA, you will see what in operations is referred to as the efficiency frontier.
This line marks the point at which no company sells more chocolate bars with a lower CPA. There are some companies that are selling less bars with a lower CPA, or more bars with a higher CPA, but no companies lie beyond the efficiency frontier because of the inherent trade-offs between the two metrics. The closest companies to the frontier have the potential to get more conversions with the lowest possible CPA. Next you take a look at your own account and plot your performance on the same graph.
Lo and behold, your performance is lagging behind that of your competitors sitting on the efficiency frontier. The distance between you and the frontier is the room for improvement. If other competitors in the space are getting more conversions with a lower CPA, then your account is not as competitive as it should be.
How to Reach the Frontier
Improving account performance within the confines of measurable client objectives is the ultimate goal of the paid search marketer. Reaching the efficiency frontier within a specific business vertical is the best way to accomplish that goal. So how do you spend less money and sell more chocolate bars?
Here are 4 things to focus on:
1.) Ad Copy Improvements – It’s stamped into every marketer’s head from Day 1, but writing compelling and relevant ad copy is the simplest way to improve efficiency. Better ads will result in higher CTRs, higher quality scores, and lower CPCs.
2.) Landing Page Improvements – Relevant and well-designed landing pages are key to increasing quality scores and conversion rates. More chocolate bars sold for every click you buy!
3.) Bid Optimizations – The art of optimizing bids is far too complex to go into here, but the end goal should be to bid more on highly converting terms and less on poor-performing ones to get more bang for each buck spent. After initial optimizations like ad copy and landing pages, bid optimization is the most powerful weapon in marketer’s arsenal to lower CPA and increase conversions.
4.) Account Additions – Every new tool that Google or Bing introduces that can help any of the aforementioned metrics should be utilized and consistently optimized for your account. Using ad extensions, remarketing, dynamic search ads, etc., are all ways to make sure your account is performing as efficiently as possible within the competitive search marketplace.
To the Efficiency Frontier… and Beyond
So you wrote the perfect ads, designed the perfect landing page, utilized every tool from Google and Bing that you can get your hands on, and you constantly optimize bids. You take a second look at your chocolate bar account’s performance, and you plot yourself on the above graph again; you’re on the frontier! While there is always room for improvement because of market fluctuations and factors outside the search market, you can bask in the glory of account efficiency.
But how do you move beyond the frontier? How do you break through that line set by your competitors and sell more chocolate bars at a lower CPA than anyone else? You must strive to always improve using the tools outlined above, and you must also take advantage of any changes to search engines or advertising platforms quickly and decisively to stay ahead of the competition. Change is the nature of the industry, and you must embrace it every day to stay on top. The efficiency frontier shifts constantly, and so should you.