Debra Mastaler is Features Editor...
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.
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?
Now, I am not saying the remaining searches cause clicks on organic listings.
34% of searches get no clicks because Google is solving a lot of search queries through their knowledge graph, which means a user won’t have to click. Plus, people are clicking on images, new stories, map listings, and whatever else Google decides to show.
But still, the majority of the remaining clicks are going towards the organic listings.
So why are you focusing all of your efforts on paid ads?
Just think about it. You know ad costs are going to keep going up because they have over time. And users prefer to click on the organic listings, yet you still spend the majority of your budget on paid ads.
And no, I am not saying that you shouldn’t leverage paid ads. Heck, I still think you should spend the largest portion of your marketing budget on paid ads because they are easier to scale, they convert better, and you’ll see an instant return assuming you know what you are doing.
But what you should be doing is maxing out your SEO spend because it produces the best return.
Here are 3 lessons for you when it comes to your marketing efforts and where you should be investing your time and money.
Lesson #1: Get good at SEO
You have no choice!
You’re going to struggle to keep your business profitable as your cost to acquire a customer is going to continually rise.
If you don’t believe me, just look at Google’s revenue graph that I shared above.
But here’s the beauty: If you get it right, your cost for SEO will continually go down over time compared to how much traffic and sales it’s driving.
Let’s look at NeilPatel.com.
I’ve been doing SEO on my own site for many years now. And when I mean SEO, I’m encompassing social media marketing, content marketing (including podcasts and videos), and crazy experiments.
Here’s my overall traffic excluding any cost per click type of ads for 2015.
A whopping 868,821 unique visitors. During that year I spent $320,301 on SEO related efforts, excluding CPC ads.
And in 2016 I generated 3,448,929 unique visitors and I spent $1,430,133 on SEO related efforts, excluding CPC ads.
Last but not least, I generated 7,442,647 unique visitors in 2017 for a total spend of $581,495 on SEO related efforts, excluding CPC ads.
2018 isn’t over yet, but my costs are even going to be lower than 2017 and my traffic is higher.
Technically if you include how much money I’m spending on building out the Ubersuggest tool it will be higher… but that’s not really considered SEO.
Here’s a recap…
In 2015, SEO was really expensive for me when you look at it from a cost per visitor standpoint.
It got worse in 2016 because I really wanted to grow faster, and then in 2017, I started to run out of places to spend my money and naturally, my growth rate slowed down.
If you fast forward to today, my cost per visitor is drastically lower than 2017. But still… I’m able to generate a B2B visitor for less than 8 cents.
That’s ridiculously cheap considering some of the terms I rank for would cost me $11 a click.
In other words, SEO is very expensive in the beginning, but it generates one of the highest ROI because you don’t have to keep spending money at the same pace to generate the greater results.
With paid advertising, if you stop spending money, your traffic and sales will stop. And if you want to scale fast, it tends to cost more per visitor instead of less per visitor like SEO.
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.
Lesson #2: Ugly is the new sexy
I asked each of the 208 companies one simple question… which marketing strategy has provided you with your biggest return on investment?
Can you guess what the answer was?
No, it wasn’t SEO.
It was CRO (conversion rate optimization)!
The second runner-up was SEO.
It makes sense though.
If you already have traffic, optimizing for conversions is one of the simplest ways to grow… assuming you can come up with tests that perform better than your control.
But here’s what’s interesting… less than 1.7% of marketing spend was allocated towards CRO when you look at all companies as a whole.
I do understand why companies generating under $5 million a year in revenue don’t spend much on CRO because they don’t have as much traffic.
But if your company generates over $5 million a year you should consider allocating more of your budget towards CRO.
Yes, it’s not as sexy as SEO or social media marketing, but it works.
Lesson #3: Don’t forget lesson number 2
Most marketers and companies want to be hip and cool. In other words, they want to spend more time and money on cool marketing channels.
When I asked each company, “which marketing channel do you feel has the most potential”, here are the responses I got back:
What’s shocking about the chart above is that both B2B and B2C companies almost equally agreed Instagram and YouTube have the most potential.
Although Instagram is cool, ads are really expensive and it’s hard to generate a positive ROI on Instagram.
As for YouTube, there is huge potential in it as long as marketers are willing to create videos. YouTube SEO isn’t competitive and ads are still affordable.
But here is the thing, you can see from the data above that most of these large companies have been built off of traditional channels like paid ads and SEO.
Yes, these newer channels are sexy, but the old ones still work extremely well.
And here is the kicker… you haven’t even seen the maximum potential of both paid ads and SEO because most you haven’t fine-tuned them.
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?
Yes, I spend a lot of my time and money on podcasting and videos, as well as leverage all of the cool channels such as Facebook Watch, but I do the fundamentals really well.
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. With all of the companies I talked to, less than 3% dominated the organic listings. But before you go all in on SEO, you need to setup tracking correctly so you so aren’t wasting your time driving traffic that doesn’t convert.
- Keep your SEO budget reasonable – I’m kind of crazy, but most companies should never spend more than a million on SEO. Yes, really big companies will… but when you are maxing out your SEO budget it’s nowhere near as expensive as paid ads. As for what the amount will be, it ranges a lot depending on the industry, how competitive it is, and how fast you want to grow. So sadly I can’t give you an answer on how much, but it should decrease over time.
- Invest more in CRO – if your company is generating at least 5 million dollars, you should consider spending more money on CRO. I know many of you don’t care for it based on the data above (plus my CRO blog posts aren’t as popular as my SEO ones), but it will help tremendously. It will allow you to spend more on paid ads as costs rise and it will increase your overall profit margin.
- Avoid the sexy marketing channels – you shouldn’t consider copying me or others when it comes to Facebook, YouTube, etc. if you haven’t figured out the basics yet. Spend more time and energy on what’s proven.
- When you’re small, test – many of you have businesses that generate less than a million dollars a year in revenue. If this is you, don’t follow the formula above. When you are starting off, it is best to test 4 or 5 marketing strategies out at the same time. Spend very little money on each of them… whichever one produces the best return, that’s what you should focus on in the short-run.
And if you are one of the rare marketers in which you’ve mastered all of the above strategies and already implemented them, the next step for you is to think outside the box and be a bit more creative.
Just like I am doing by creating marketing tools.
So where are you spending your marketing dollars?
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