Does Google Adwords Work for Small Businesses?

Tony Chopp

Your small business has countless choices to spend marketing dollars--it’s no surprise there are so many questions about the best options. But just like the rest of life--the best way for one may not be so great for the next. And so it’s true with digital marketing acquisition as well.

I really believe that all marketing works. TV ads--yup. Radio--I’ve had success in earlier parts of my career on the radio. SEO--for sure it works. Email marketing, social media marketing, paid social ads--content marketing, youtube--yes, yes, yes and yes. We have seen them all work and work really well. It’s just to what degree and at what cost and with what efficiency--more commonly referred to as return on investment. I’ve gotten calls on direct response print ads before. The cost per call was embarrassing. But given enough money to invest in advertising--you could acquire clients that way. Probably not at a profit though.

So the question, ‘Does Google Adwords work for small business’ is a relative one--not an absolute. In certain circumstances it’s an excellent component of a bigger picture. In others--there are likely other marketing channels that will serve you better.

It Depends on What You Sell

Or maybe not so much what you sell, but how much a sale is worth to your business. If you sell $10 t-shirts we’re not going to recommend Adwords to you. Although you will fill find Product Listing Ads for t-shirts--and that’s not necessarily a bad idea. The economics of PLA’s are quite a bit different due to significantly lower CPC’s and typically, with good targeting--rock solid conversion rates.

 

But for normal search ads in almost all cases you’re going to need a much higher-value sale.

The reason boils down to simple math. And we can walk through it by making some preliminary assumptions. For example, you can assume that not everyone that goes to your site will do the thing that you want them to do. Whether it’s to call for an appointment or make a purchase online--only a certain percentage of people will do that thing.

From experience we can tell you that ratio--which digital marketers will refer to as your ‘conversion rate’, falls into a much narrower window than 0-100%. We’ve never had an opportunity to work with a client that converts 90% of their traffic. Never 80%. Not 50% even. The reality is that regardless of how good your traffic is--the majority of visits will not result in a conversion.

It sounds depressing, but it’s not. They’re just numbers--they don’t have feelings.

When we don’t know anything about a client at all we have benchmarks that we’ll start with.

  • Lead Gen 5% Conversion Rate

  • eComm 0.80% Conversion

Those starting points are based on years of historical experience across hundreds of acquisition campaigns and millions of dollar in ad spend. They’re road-tested for sure. And they are an excellent starting point for our math models--which is the core of how we crack this problem.

Adwords Lead Gen Example ROI Model

  • Goal Conversion Rate = 5%

  • Sales Conversion Rate = 10% (Another number we’ll ‘benchmark’ in the process of initial modeling)

  • Average Value of Sale = $1,000

  • Average CPC = $2.00

  • Ad Budget = $2,000/month

So what do you think--does it makes sense given these inputs?


Now if you think like we do--no one’s getting excited about a 1.5 ROI. Considering there’s another benchmark that we can lay on this analysis--profit margin. And that business operating at 30-40% profit margin are doing very well by most measures.

So we know that example above isn’t a home run--but it gives us a framework to follow.

It Depends on How Well You Know Your KPI’s

We see a pretty wide range here when we first start working with a new partner. Some folks know their sales funnel intimately. Others have not considered looking at their business from this perspective at all.

But the more quantitative data you collect about your business--the more likely you are to be a successful PPC advertiser on Adwords--or any other paid traffic acquisition tactics in general.

Let’s re-run the same example as above--but this time we’ll make two assumptions:

  1. We can increase the website conversion rate from 5% to 6.5% through on-going optimization

  2. We can increase sales conversion rate from 10% to 15% with better lead nurturing and better communication between sales and marketing, with a feedback loop on lead quality


That’s much better.

Then Imagine after some on-going optimization in the Adwords account we could drive the same quality traffic, but lower the average CPC from $2/click to $1.50. That would be 25% more clicks in the top end. That will supercharge ROI.

How Much Do You Need to Spend on Adwords?

Another relative question--but the important take away here is that small numbers don’t play nicely with averages. Said another way, if you’re average sales conversion rate is 10%, that average will likely hold up well over a big data set, like thousands of leads and hundreds of sales. But you may not close one out of your first ten leads.

So Adwords viability for a business really becomes a cash flow issue. Can you afford to invest enough up front to get the machine running, knowing that you’re going to have to pump enough leads through the funnel to get some averages working in your favor, and working consistently.

If you have $1k/month to invest and you’re a lawyer and you want to buy legal keywords you’re going to have a hard time competing, with average CPC’s well over $20/click in some geographies.

Either way, we can use modeling like those above to hone in on an answer to this question--and experiment with how the different variables affect the net end result--ROI--the performance of your marketing investment.

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