The Revenue vs. ROI Debate

This week Matt Umbro (@Matt_Umbro) came up with yet another great question set titled “The Revenue vs. ROI Debate.” The following is the transcribed Streamcap from the live chat:

Q1: When taking over accounts what is your top priority – build (to increase revenue) or restructure (to improve ROI)? Why?

  • Depends entirely on the clients goals and why they’ve brought me in on the account. – Richard Fergie (@RichardFergie)
    • Exactly. Depends on the situation and the priority of the business. – Max Fink (@maxfink_SEM)
  • Ultimately depends on Client goals. Ideal situation establish ROI and scale up for revenue. – Jake Waldrop (@Jakew1541)
  • Neither, it’s to increase profits. – Steve Gibson (@stevegibsonppc)
  • I generally like to cut the fat and get everything in line first (ROI), then build. – Matt Umbro
  • Usually start with restructure to increase ROI. It is rare that I pick up an account that is already satisfied with efficiency. It is much easier to build the account and grow volume after a solid foundation of aligned & efficient structure is established. – Chris Haleua (@chrishaleua)
  • Both! But I start with a restructure based on past data. Many accounts are a real mess, and a proper structure is vital. – Jonathan Maltz (@MaltzPPC)
  • Really depends on the account. If decent historical data is there, restructuring generally plays a big role. – Timothy Jensen (@timothyjjensen)
  • Usually restructure first. Find out what the previous ppc manager did. Rebuild the foundation then build up. – Olin Downs (@olinjdowns)
  • Extablishing a solid campaign structure that allows growth. Most of the ones I’ve taken over are a complete mess. – James Svoboda (@Realicity)
  • I focus on ROI. Lower the cost/conversions so you can use leftover cost to bid higher on rockstar KWs & then go after more. – Joe Martinez (@MilwaukeePPC)
  • I prefer the client sign off on goals, targets, expectations. win/win if we agree in advance. – Travis Phipps (@phipps)
  • I like to restructure first, and build shortly after, especially if client has limited budget & not a lot of room to build yet. – Kirk Williams (@PPCKirk)
  • Always restructure first, makes it easier to push and pull levers (so to speak) when wanting to improve revenue after. – Inderpaul Rai (@inderpaul_rai)
  • Depends on the goals of that client. Do they want a full on house party or just one glow stick? Scale or leanness? Their call. – Johnathan Dane (@JohnathanDane)
  • Clients change managers for many reasons. If I’m on a new account either because efficiency is poor (so focus on ROI first) or because of general sense of client/agency ennui; in this case either will work but volume often easier. – Richard Fergie
  • ROI is my top priority, whether accomplished through a restructure or building on existing depends on the state of the account. – Josh Kelson (@JoshKelson)

Q2: Can optimizing toward ROI be an account detriment? How so?

  • If not done properly, sure. If your ROI is 100% but you’re only making $1, you’re not having a positive effect. – Jonathan Maltz
  • Absolutely if ROI conflicts with client goals. I.e., “Just keep me in the black and maximize revenue.” – Kirk Williams
  • Sure, you can have great ROI with very little scale. That’s not what enterprise level clients want, though. – Max Fink
  • Yes. For accounts that are already in good shape increasing ROI is linked with lower volume. – Richard Fergie
  • Yes. Again depending on your goals. Revenue based goals need volume. – Jake Waldrop
  • Focusing solely on ROI can kill account growth. – Matt Umbro
  • Definitely, if the client has revenue or lead volume targets. Also limits testing/expansion areas. – Lisa Sanner (@LisaSanner)
  • Yes, can potentially be so cautious you’re not picking up on new potential kw. Like only using 100% proven exact terms. – Timothy Jensen
    • Good point. It’s always important to test new ideas, which will invariably lower ROI at times. Not all tests pass. – Jonathan Maltz
  • It can be, positive ROI can leave you with little revenue & traffic volume which may conflict with what the client wants/needs. – Inderpaul Rai
  • Many accounts need growth. Also, consider how ROI is calculated. CLV, AOV, etc. Lots of ways to skin a cat. – Travis Phipps
  • Yeah, the volume game. It’s kind of like trying to have your cake and eat it too at that stage. – Elizabeth Marsten (@ebkendo)
  • Yes, simply because it can kill volume immediately. You might get a great ROI, but at the cost of 80% less conversions. – Johnathan Dane
  • Definitely. We’ve set high ROI bidding goals based on what client wants & it can kill volume. Have to be careful w/ automation. – Luke Alley (@LukeAlley)
  • If you’re aiming to optimise %ROI, then one way to do that is to strip out kw with lower ROI – even profitable ones. – Steve Gibson
  • It can be. Educate the client..a lower ROI sometimes can be more beneficial than a higher ROI. – Olin Downs
  • Also, with lead gen clients, low CPA doesn’t always mean a quality lead. – Timothy Jensen
  • n

  • Segment ROI goals by divisions of the business. Not account as a whole if it applies. – Joe Martinez
  • Know both your ad costs & your COGS to determine the breakeven point when marginal ROI losses still lead to profit growth. – Chris Haleua
  • It can hurt volume tremendously. That is why it’s important to optimize w/multiple KPIs, weighed based on campaign objectives. – Maria Corcoran (@mariacorcoran)
  • Don’t let imbalanced focus on efficiency hold you back from the best bottom line. 2 is good. 3 is best. – Chris Haleua

Q3: What factors have you found to influence average order value? Is it worth driving more revenue if AOV is low? Why or why not?

  • Biggest factor we can influence is ad copy, promoting a sale for example reduces AOV as it attracts the bargain hunters. In addition, dynamic ad copy with price points directs better qualified traffic, more likely to convert on expensive products. – Inderpaul Rai
  • Sales/Offers esp. free shipping. Client had tons more orders for less per order when they didn’t give free shipping. – Kiko Correa (@obiwankikobi)
  • It’s always important to keep in mind the difference between AOV and CLV. Just putting that out there. – Jonathan Maltz
  • Be willing to take hit on loss leaders or low AOV in order to grow retargeting audiences, brand affinity & overall profitability. – Lisa Sanner
  • Free shipping tends to lower AOV since the consumer doesn’t need to meet a shipping threshold (ie: $50). – Matt Umbro
    • Non-free shipping tends to drive potential customers away! – Jonathan Maltz
      • Not always, especially if the threshold is low (ie: spend $30 and get free shipping). – Matt Umbro
        • I suspect that that varies by the offering, e.g. if the average product price is $25 vs. $5, and other factors. – Jonathan Maltz
          • Some people (my wife in particular) won’t buy unless shipping is free, but that is a conversion issue not AOV. – James Svoboda
            • Sometimes though you can use that motivation for Free Shipping to increase AOV. – Bryant Garvin
  • As long as AOV > COGS & Ad Cost, then drive for growth, but those higher AOV products usually have slower consideration cycles. – Chris Haleua
  • Dest url/landing pg influence AOV (pos & neg). Depends on what you mean by low AOV, if still profitable, bring on the traffic. Bundling products, min reqs for discounts, etc. – Travis Phipps
  • Cart add-ons and related items on product detail pages. Simply add higher priced products to your offering. – Jordon Meyer (@jordonmeyer)
  • LPs & Ad Copy that offer bundle type promotions can help with AOV, even with free shipping. – Maria Corcoran
  • For ecommerce, cross selling a la Amazon. For bigger ticket things – e.g. software – different packages at different prices. – Steve Gibson
  • AOV is subtantial impacted by volume. Keywords with better ROI arent necesarily driving most of the revenue. – Juan Restrepo (@juanrrestrepo)
  • Obviously it’ll vary per client but we found people were saving up for one giant order when we offered free shipping. – Kiko Correa
  • Discounts/Sales/Free Delivery have been great ways to increase AOV. Customers feel like they are getting a better deal. – Olin Downs
  • AOV, conversion rate etc – it is all about value per click. By which I mean actions that decrease AOV often increase CR (and the other way around). Value per click covers all options. – Richard Fergie
    • I think it means driving more lower-revenue sales vs. focusing on high AOV. – Jonathan Maltz
    • In other words, even if more revenue is coming in, are low AOV purchases worth it profit wise. – Matt Umbro
  • I’ve seen many on-site issues (shopping cart, product pricing, presentation, and bundling, upsells) that affect AOV. – James Svoboda
    • It’s very true. AOV can certainly be enhanced with onsite CRO/cross-selling/other! – Jonathan Maltz
  • Lower AOV isn’t necessarily a problem. Profitability is all that matters. – Theresa Zook (@I_Marketer)
  • If using portfolio tech consider separate portfolios for high vs low AOV since the conversion frequency might vary drastically. – Chris Haleua
  • Important thing to factor in with AOV is LTV (Lifetime-value) of the customer. May only be 8.95 a month but netflix makes a ton. – Bryant Garvin (@BryantGarvin)

Q4: Give an example of a scenario that involves managing for revenue instead of ROI. Why is this the case? 

  • SaaS company just gets some VC. Aggressive growth targets need to be hit in order to get next funding round. – Richard Fergie
  • The start of almost any new product launch? You have to generate awareness & sales b4 ROI can be considered. – Theresa Zook
  • Bidding aggressively on top of funnel keywords vs. more specific ones. – Matt Umbro
  • “Fixed costs” necessitate many times you make $X revenue even more importantly than $Y in margin. – Bryant Garvin
  • Market Share. Manage for revenue when entering new market or trying to squeeze someone out of a market. – Jake Waldrop
  • ROI calculates strictly performance for Paid Search, but it fails to account for revenue under assisted conversions. This has a direct impact on ROI. But as I said it is underscoring the impact on marketing and assisted conversions. – Juan Restrepo
  • If we’re looking at different attribution models we bid more aggressively on generic keywords and ignore ROI in these cases . – Inderapaul Rai
  • Display. Video. Any brand awareness campaign that isn’t focused on DR. Need to look down the sales funnel, not direct ROI. – Jordon Meyer

Q5: How can revenue continue to grow while ROI remains stagnant or doesn’t take a hit?

  • If your impression share is low – raise your budget! In the long-run, revenue should increase without negative affects. – Jonathan Maltz
  • You can grow profits while lowering %ROI: just add in keywords/channels that are less profitable but, nevertheless, profitable. – Steve Gibson
  • For ecommerce it comes back to
    1) Renewals
    2) New Products
    3) New Marketing Channels
    4) Me. – Bryant Garvin
  • Test new/more channels – contextual, placement, remarketing, search partners, mobile, etc. – Matt Vaillancourt (@SEM_PPC_MattV)
  • Adding new keywords to your keyword portfolio is one way, but have to do it slowly over time in order to prevent tanking ROI. – Inderpaul Rai
  • LPO and CRO. Improve both metrics. – Joe Martinez
  • Automated bid rules do help with keeping ROI in check whilst trying to grow the accounts by expanding on your keyword set. – Inderpaul Rai
  • Strategic positioning. Measure % of revenue per position. Optimize accordingly. – J. Prentice Parton (@jprenticeparton)
  • Raise your budget to meet close to 100% impression share. Increasing LP conversion rate lets you bid on less profitable KWs. – Jake Waldrop
  • Investing in other channels e.g. paid social, Bing, other search engines etc. can help grow revenue when current activity dries. – Inderpaul Rai
  • Get Your Mobile S#%t Together! – Bryant Garvin
  • Hit the top of funnel harder to increase pipeline while balancing the CPA. Alpha/Beta PPC approach can fuel this. – Jordon Meyer

Q6: Is there a metric beyond revenue or ROI that you should be optimizing for? Why?

  • KPIs. Because. – Jonathan Maltz
  • Profit. You can increase %ROI while gutting your profits. You can inc revenue while cutting profits. Profit is the #1 metric. – Steve Gibson
  • One metric that hasn’t been discussed is ad/sale. In other words, dividing your total spend by total revenue – the lower that percentage the better. – Matt Umbro
  • Profit Volume. Because sometimes improving ROI actually decreased profit vol. – Matt Vaillancourt
  • “up and to the right” The only metric owners and execs care about. – Jordon Meyer
  • There are many factors involved like seasonality and strategy, but I’ll say AOV. – J. Prentice Parton
  • Have clients who like to keep cost of sale low (spend/revenue) e.g. doesn’t mind cost as long as overall CoS doesn’t exceed 15%. – Inderpaul Rai
  • Look at individual campaigns as tactics helping you achieve ‘max profit’. – Jake Waldrop

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Don’t forget to stay tuned for the next #PPCchat on Tuesday at 12 noon Eastern, 9 am Pacific and 5pm in the UK. Same Chat time, same Chat channel.

Participants

Check out the PPCChat Twitter list to see and connect with all current and prior participants.

• Matt Umbro (@Matt_Umbro)
• James Svoboda (@Realicity)
• Paul Kragthorpe (@PaulKragthorpe)
• Bryant Garvin (@BryantGarvin)
• Chris Haleua (@chrishaleua)
• Elizabeth Marsten (@ebkendo)
• Inderpaul Rai (@inderpaul_rai)
• J. Prentice Parton (@jprenticeparton)
• Jake Waldrop (@Jakew1541)
• Joe Martinez (@MilwaukeePPC)
• Johnathan Dane (@JohnathanDane)
• Jonathan Maltz (@MaltzPPC)
• Jordon Meyer (@jordonmeyer)
• Josh Kelson (@JoshKelson)
• Juan Restrepo (@juanrrestrepo)
• Kiko Correa (@obiwankikobi)
• Kirk Williams (@PPCKirk)
• Lisa Sanner (@LisaSanner)
• Luke Alley (@LukeAlley)
• Maria Corcoran (@mariacorcoran)
• Matt Vaillancourt (@SEM_PPC_MattV)
• Max Fink (@maxfink_SEM)
• Olin Downs (@olinjdowns)
• Richard Fergie (@RichardFergie)
• Steve Gibson (@stevegibsonppc)
• Theresa Zook (@I_Marketer)
• Timothy Jensen (@timothyjjensen)
• Travis Phipps (@phipps)
 

This PPCChat Steamcap Debate Brought To You In Part By

This is a guest post by Paul Kragthorpe; works at WebRanking in Minneapolis, Minnesota.
Connect with Paul @PaulKragthorpe, and Google Plus.

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