The economics and the business model are a challenge. Resellers have to pay sales teams who have to sign up as many advertisers as possible and account managers (if the business has any) have 100′s or 1000′s of accounts to look after.  The reseller than has to slap on a massively high mark-up on the Cost per click to drive any revenue at all.

I’ve seen 100% mark-ups ‘out in the wild’.

It’s a low quality, high volume business. and yes, the churn rate is massive because advertisers are not happy with results or service.

Honestly, It’s not a business model I’d touch with a 10 foot pole!

What I have begun to do is share my knowledge on this blog (via the ‘Mind your own PPC’ posts) in the hope that small business readers can start to wrestle control of their marketing back from dodgy resellers and actually get some value for money. Eg don’t pay a 100% mark-up on Click costs if you don’t have to.

However the reality of the situation is that many small business owners simply do not have the time (even a few minutes a day) to devote to managing their own local search campaign, nor the time to devote to learning what they need to learn to get things going properly.  Yet they also know that that they are potentially missing out on valuable traffic by not having a presence in the search results or map pages.  So they’re forced to find a supplier who can get them there, even if it means paying more than they should for mediocre campaigns…

Enter Google AdWords Express

BEFORE WE GO ANY FURTHER… Google are about making money, just like every other busines so they’re not a knight in shining armour here to rescue small businesses in distress, they see a massive opportunity to get 1000′s of small buinsesses online and buying their ads. They’re obviously not happy with the reseller model either so they seem to have reached a compromise,

It’s also worth noting that I’ve not yet had any first hand experience with Express, so these are just observations based on what information I’ve been able to find so far.

What is AdWords Express?

It’s designed to get small local advertisers up and running on Adwords as quickly as possible with a minimum of understanding required (sounds dangerous right?!). As Google explain:

AdWords Express is the easiest way to advertise on Google. Creating your ad takes just a few minutes, and that’s it. Everything else is managed automatically, ensuring your ad is only shown to people looking for what you have to offer. Now you’re advertising to an audience that’s already interested in you.

Search Engine Land also summed it up well saying:

The idea behind AdWords Express is that local businesses, who, at one time, only needed to place a yellow pages ad once a year, have been frightened away from AdWords by the perceived complexity of keywords, bidding, etc. With Express, they input a bit of information about their company, set a budget, write a couple of lines of ad copy, and Google handles the keywords and bidding.

How does AdWords Express work?

You tell google about your business and location, google give you some ads. Sounds easy right?

When people search online for local products or services that you provide, an ad for your business will appear above or beside their search results. Your business will also be marked with a distinctive blue pin on Google Maps, helping it stand out to potential customers.

Who should use AdWords Express?

AdWords Express is for local businesses looking for local customers. It’s for business owners who want the benefits of a targeted online ad campaign, without having to spend time managing it.

Won’t Google just charge Advertisers more for clicks – like the resellers do?

Google can’t mark-up the CPC because it’s an auction, but they can bid high and broad. I envisage an AdWords Express  “convenience tax”. eg. Google will bid very competitively on terms (eg high) and possibly use broad matches to get as many clicks are possible. The focus will be on Clicks and not conversions so Advertisers will pay more than they potentially needed to, but it will beat paying 100% mark-up to resellers who also focus on the clicks.

Who will could AdWords Express ‘hurt’?

a) The resellers
b) Service based directories with large adwords campaigns covering multiple service categories and locations. Sorry guys, if Express takes off in your market, expect CPC’s to rise!

If you’re after a sophisticated, conversion orientated PPC campaign, then Express is  not for you. But if you’re a small local business who would like a hassle free way to start advertising on Google, then this could be a safe bet.

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It’s easy to criticize the folks who are pioneering the local online marketing space. Small business customers don’t have a lot of money, have huge needs, and are not well-versed in how PPC, SEO, and all the other acronyms work– nor do they care. For a thousand dollars per client each month, you have to pay for finding clients, educate them on what you do, and yet have enough to spend on PPC, building landing pages, SEO, account management, reporting, call tracking, and so forth. And the venture capital folks want to make a 20x return on their investment. You do the math and see how near impossible it is to succeed in this space.

I’m going to show you what it’s like from the inside, since we have to deal with these economics every day. Even if your cost of sales and marketing is only 20%, product cost is 20%, and general overhead is 10%, you’re still left with only 50% for other variable costs. Nobody will tell you exactly what they’re spending on PPC (except perhaps us– we are at 70% of the client’s dollar), so let’s assume it’s around 30%– an anecdotal figure based on competitor accounts that have come to us.

If you skimp on building the platform, then you can reduce your platform (engineering, design and product management) costs from 20% to 10%, which then allows you to increase PPC spend from 30% to 40%. Yet that extra 10% in spend doesn’t make up for the inefficiencies you have from a platform that doesn’t effectively buy traffic or have landing pages that convert. The largest players in this space, in their relentless focus on customer acquisition, won’t build landing pages on the client site or do SEO to help grow organic rankings. That’s hard to scale. Instead, they will mimic the client’s landing page on their site. Short-run results, but long run waste.

To be able to pay your aggressive sales force enough to keep them interested, you can’t cut the commission, so you cut the product offering:

• Don’t offer SEO (it doesn’t scale, since it requires bodies, small business owners often don’t remember the ftp logins, and you don’t want to lose cycles arguing about design aesthetics).
• Don’t do listings with Google Local Business Center, Yahoo, and Bing– that’s a highly manual process and the business owner often won’t get you the PIN confirmation.
• Don’t help the client add pages to their site or do SEO– you only do PPC to your own landing pages.
• Don’t tell the customer about email marketing and trigger campaigns– you don’t care about retention and neither should they.

Net-net, with an unsophisicated client base and equally aggressive and unknowledgeable sales force, you have the current situation. They are acquiring customers like crazy, yes– but are losing them just as fast when the game is up in a few months. One of the top 3 largest players in this space paid their sales staff a commission up-front based on a one year contract. Yet when clients were leaving after a few months, they had to reverse out sales commissions, which angered the sales force. What sales person is going to want to pay back commissions, especially when it’s “not their fault” that the product didn’t perform?

The problem lies in the way current players are structured– it won’t fly when you offer a rudimentary package being sold by agents that have no responsibility to the client. Sales says one thing and you don’t hear from them again after you give them your credit card. Operations– the folk in the call center– don’t know what the sales person promised, nor are they incented to care about whether your campaigns are generating leads. No matter how much money you pour into this broken model, it won’t fix itself. You’re not going to “make it up in volume”, nor can you make chicken salad out of chicken poop.

There are SEO snake oil salesmen who proclaim the cure to cancer. One of the top 10 agencies in the states called us repeatedly (not sure how they got my number), insisting that they have a special relationship with Google, where Google certifies their links. In fact, every person in their company must pass this qualifying exam, which then allows them to submit pages for organic listings. Whew, so glad that I was talking to a real pro, since I didn’t want to talk to scam artists. How would I, a small business owner, ever know. The fellow fully agreed.

One solution to this mess is to have the sales rep also be the point of contact after the sale. In other words, the client has to talk to only one person– not the next available agent in the Indian call center. This also saves the agency money, since there are fewer people that have to touch the account and be paid. With only $1k a month, you can’t afford to have a lot of people touch the account. The reason agencies haven’t done this is that it would require significant training and it’s hard enough to find good sales people.

Sales people sell– they are not there to stick around and hand hold the client. The best sales people know nothing about the product. If your objective is client acquisition, the last thing you need is to make it that much harder to find people who can sell and manage clients. But if you can do this, then you align the client’s interest with yours– paying your analysts (that’s what we call our people, since nobody is just sales) on retention. Analysts that don’t perform are naturally weeded out with this model.

The second solution is to offer a real platform that will drive phone calls. And that requires efficient search (whether organic or buying of media), plus landing pages that convert. If these firms were to offer simple site building services, listings, email marketing, video, and all the other pieces needed to truly deliver on the promise, they would have to charge $3,000 for each client based on their current level of overhead and sales structure. But when the market becomes educated in a couple years, the snake oil approach will no longer work.

If you’re a small business owner, how are you to tell who is real? There are directory players claiming guaranteed first page listings for only $20 a month. We won’t name names, but you know the players and software providers. Why pay $1k a month when you can have it for $20?

How about Facebook, twitter, and all the other marketing venues competing for your attention? If you’re that local dentist or cosmetic surgeon, you don’t have time to do all these things, much less evaluate what is worthwhile.

What BlitzLocal does is focus on client transparency:

• We spend 70% of the client dollar on clicks and are fully transparent in what we do. For agencies who say otherwise, just ask them to show you the actual PPC accounts and how much was spent. Try asking for an export of the Google, Yahoo, and MSN campaigns– not from the agency interface, but the actual campaigns.
• Clients get the full range of needed services-- we build landing pages on their site, help them get listed in directories, set up call tracking, and educate them on how to write content for their site– and solicit links from neighboring businesses.
• Our contracts are month-to-month. If we don’t perform, kick us out. No 12 months contracts. You will get measurable phone calls or we must leave.
• We don’t have sales people. We have analysts that are trained enough to troubleshoot your campaigns. You talk to just ONE person who is knowledgeable, not an order taker. Our people are paid on client success and retention– it’s only fair.
• We grow slowly: We don’t have 900 people– only 50. And we focus on retention, not client acquisition. In the long run, we will have a larger client base from not losing clients by overpromising.

“Really, you can actually track online sales generated from AdWords Clicks?”

I wasn’t all that surprised. I guess the main issue was simply lack of understanding (on the advertisers part), and an inability to set expectations on the reseller side that proved the downfall, needless to say, the Advertiser was not happy and the reseller lost a client.

It’s a problem I’ve been thinking about for some time, and if there is a better model to jump start the SMB’s / SME’s into local search, then I simply don’t think we’ve found it yet.

It’s a challenge, and an opportunity… SMB’s have so much to gain from Search Engine Marketing, but when it’s not delivered well and expectations are not met, the Small business operator gets burnt, moves on, and our industry is tainted.

I read an article last month by Greg Sterling over at Search Engine Land called – ‘Borrell Shines Light On “Local SEM” Churn’ and I pretty much sat at my desk nodding in agreement. Greg summarized the findings of a report by Borrell on Advertiser Churn in the SMB space. The findings were alarming!

The study showed that local search advertiser churn reached close to 100% on an annualized basis.

* 6-10 percent a month attrition on gross customer count
* Up to 50 percent [of SMBs] quit by 90 days
* Up to 90 percent quit within 6 months

As Greg rightly pointed out, some resellers to better and some do worse, but still the monthly average churn was at 7%. Wow!Why?

I know how well search marketing can work, and I’m sure you reading this either know yourself, or have heard countless stories of success. So why are the SMB’s that buy these packaged PPC plans abandoning it almost as fast as they sign up?
I’m going to quote Greg directly now as I think the primary points he raises are spot on.

From my understanding and experience it can be attributed to several factors that operate to varying degrees in most cases:

* A lack of education for the SMB and appropriate expectation setting
* Not allowing enough time for the campaign to become optimized
* Media salespeople who are compensated on customer acquisition, not customer retention
* Not enough of the advertiser spend going to the media/search buy (as much as 40 percent may go to overhead/profit, yet that may be necessary)
* In a limited number cases, the advertiser seeking to pick keywords or otherwise dictate or manage its campaign from afar (and not well)

Is anyone else thinking – ‘failed business model?’ Well I certainly am.

You see, many of the resellers approach PPC sales as if they we’re trying to sell a Yellow Pages ad to a Dentist. They try and sell this simple, easy to understand package for Search Marketing. The problem is it’s not simple!

Greg’s first point re education and expectation setting is just the tip of the iceberg. With PPC you can’t sell a $19.95 per month PPC package (where maybe $10-$12 actually constitutes media spend) to all local business verticals and expect to generate the same results every time. What about the search volume available – the opportunity? The competition.. the CPC? Advertisers are going to see very different results for their $19.95 too… While one can get on Google with a first page bid of $0.10, another in a more competitive market may have to pay a CPC of $1.00 (or $3, $5, $10) to just get on the first page, let alone a ranking higher up the paid search results. Now in fairness to the most common product offerings out there, there are tiers of ‘spend’ that are meant to cater for advertisers that *should* spend more. But, there in lies the issue. Does the sales guy on the end of the phone really understand what it would take to run a successful PPC campaign for a local florist versus an accountant? Probably not, or probably not enought to warrant loosing a sale becasue the $19.95 a month package was easier to sell than the $49.95 per month one they probably should have bought…

The reseller business model (in simplicity) is a volume game, sell the yellow pages Ad – I mean PPC campaign – run some technology solution to build and run the ads, and then sell more. Rinse / Repeat. Oh yeah, and when sold only spnd 50-60% of the Advertisers money on Search Ads. The rest is our margin…

I think it stinks, and no wonder advertisers are not happy.

Now I’m not saying that there aren’t companies out there doing it much better than this, and indeed many are tackling all these issues to ‘try and make the reseller business model viable’. Ouch! Try and make it work – It’s a hard slog. There’s a low barrier to entry in terms of cost, but high overhead for the reseller to support the clients effectively and manage customer expectations.

I don’t have the answers either, but I’m just disappointed that so many SMB’s who could benefit so much from targeted Local search advertising, have given up and have probably moved onto other things… “Hey let’s do twitter for my plumbing services”, “wow my bakery has a Facebook page…” Blah blah…Whatever… consumers are searching for convenience every day. They’re on Google looking for hairdressers, plumbers, electricians, accountants… you name it. SMB’s should be there too, PPC or SEO it doesn’t matter, we just need to develop a business model that fit’s the needs of the largest percentage of Small businesses, and frankly, a 7% churn rate month on month just goes to show that we’re not there yet.

What do you think would work? And if you’re an advertiser who has been disappointed in the past, I’d love to hear from you.