Yes, Google generates revenue outside of ads, but ads still make up 90% of their income. So why are you focusing all of your efforts on paid ads? You know ad costs are going to keep going up because they have over time. If you don’t believe me, just look at Google’s revenue graph that I shared above. If you are going to max out your SEO efforts like I’m recommending, make sure you know what is causing an ROI or else you’ll waste time and money acquiring traffic that won’t ever convert into sales. The second runner-up was SEO. In other words, they want to spend more time and money on cool marketing channels. So why would you want to go after unknown channels that aren’t as proven when you haven’t made the most out of the channels that work for your competition? If you want to grow your traffic, leads, and sales, here’s how you should prioritize your marketing budget: Spend more on SEO – whether you are a small company or a large one, SEO will produce a better return on your investment than paid ads in the long term. Avoid the sexy marketing channels – you shouldn’t consider copying me or others when it comes to Facebook, YouTube, etc.
You know what’s interesting about having an ad agency?
It’s that you get to talk to companies of all sizes and learn what causes them to grow.
And I know what you are thinking… “Neil, shouldn’t you be the one telling companies how to grow”?
Technically, yes. And I do.
But at the same time, I need to analyze what a company has done so far to come up with the best marketing strategy for them.
And the sad reality is, most marketers and companies are focusing on the wrong things. (I’ll go over how to fix it later in this post.)
Over the last 7 months, I talked to 208 companies to find out where they are spending their marketing efforts and what’s working. And best of all, I got the approval to share their data with you. ?
I talked to companies generating anywhere from one million dollars in yearly revenue to $291 million.
I avoided talking to companies less than a million in revenue because most of them weren’t doing much marketing. And I avoided talking to companies generating over a billion in revenue because you wouldn’t be able to replicate what they are doing.
As for the industry, I talked to companies in the B2B space as well as the B2C space. From ecommerce to lead generation to software as a service and everything in-between.
The first question I asked each of these companies was:
Where do you spend your marketing dollars?
In essence, I got a breakdown of marketing spend by channel.
It was obvious that most companies spend their money on Google and Facebook ads.
Even if they didn’t share that data with me, you can tell by just looking at Google and Facebook’s market cap. They are worth $790 billion and $554 billion respectively because of paid ads.
Now let’s break down the data by company size.
Does marketing spend by channel change by company size?
When talking to these companies, I broke them down into three groups.
The first being under 5 million in yearly revenue (with a minimum of $1 million per year). The second group was $5 million to $100 million, and the third was over $100 million.
Do you see a trend? No matter what size a company is, the majority of their marketing budget is going towards paid ads.
When I asked why the most common responses were: it’s easy to scale and you can see a direct ROI.
Now let’s look at the conversion rate per channel…
Conversion rate by channel
Before I share with you conversion data, out of the 208 companies I interviewed, only 73 of them had the correct tracking set in place for me to get accurate numbers.
If you want to succeed as a marketer, you need to set up your tracking correctly.
You don’t have to pay for an analytics solution, you can just use Google Analytics and set up goal and conversion tracking. It’s better than nothing.
Here is the average conversion rate per channel:
When looking at the conversion data per channel, you’ll notice that I combined SEO and content marketing because they go hand in hand.
The more content marketing you do, in general, the better you’ll do when it comes to SEO.
The graph clearly shows paid ads convert better. And they usually do because you can control the landing page the traffic goes to. That’s why I love paid advertising!
Just look at these 2 pages below. They are both on page 1 of Google for the term “auto insurance”.
This one takes the top spot through paid ads:
And this one takes the top organic listing:
It’s obvious why the paid one converts better. The design focuses on converting a user into an auto insurance client. The organic listing (the second one) has tons of text because, without the content, it wouldn’t rank high on Google.
But looking at pure conversion rates doesn’t tell the whole story because some marketing channels are more expensive than others.
To get an idea of how effective a marketing channel is, you have to look at return on marketing spend.
Return on marketing spend doesn’t necessarily mean how profitable a channel is.
All it’s doing is showing the return based on marketing spend.
For example, although Facebook Ads don’t convert as well as Google Ads, they are much cheaper. Out of all the companies we interviewed, on average, they generated $3.04 in revenue for every dollar they spent on Facebook ads.
Again, this doesn’t mean profit. But typically, companies won’t keep spending money unless it is profitable.
What’s interesting about this data is that it shows 2 things:
- Facebook Ads produce a better return on ad spend over Google Ads – this makes sense because it’s much cheaper to advertise on Facebook and it hasn’t been around as long as Google. Facebook Ads are quickly increasing in cost and over time the return on ad spend will probably even out with Google AdWords.
- SEO produces the best returns – assuming you have set up your conversion tracking correctly, SEO is very effective because you can focus on increasing traffic from the right keywords that are causing sales. The only problem with SEO is that it is a long-term play and you won’t see results instantly.
So what’s wrong Neil?
Well, nothing yet, because you don’t have all of the data yet. ?
Let’s look at a few more trends and data point points…
The first is that paid ads are just increasing in price, which means you can expect to pay more for them each year.
Google generated $50 billion in 2012 and $109 billion in 2017. Yes, Google generates revenue outside of ads, but ads still make up 90% of their income.
Second, the majority of users don’t click on ads. But still, companies focus their marketing budgets on ads. Did you know that only 2.6% of the searches result on a paid ad click?
That’s crazy!!!
Now, I am not saying the remaining searches cause clicks on organic listings.
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