Should Your Small Business Buy Pay-Per-Click Advertising?

Roughly 2 million small businesses spent a combined $7.2 billion on Google AdWords in 2011, the online marketing firm WordStream reports. Was it worth it?

That depends on the business, its goals, and a host of other factors. Pay-per-click, or PPC, advertising can produce profitable results, and AdWords remains the best-known platform for it thanks to Google’s search dominance. But the process of bidding on keywords can be an inexact and expensive science, which creates potential pitfalls for small businesses with limited resources.

The Intuit Small Business Blog recently caught up with Larry Kim, WordStream’s founder and chief technology officer, to find out which kinds of small businesses tend to do best with PPC advertising — and which ones may be better served by spending their marketing dollars elsewhere. His bottom line: “We’ve found that almost any kind of business can make PPC work for them,” Kim says. “It’s a matter of finding a more narrow set of targeted, relevant, high-intent keywords that drive affordable leads and sales.”

3 Types of Businesses That Perform Well

Local Service Providers. The ability to bid on keywords in specific geographic areas can make PPC a powerful tool for local service providers, particularly if their services are relatively expensive. Doctors, dentists, lawyers, and certain types of home-repair professionals fit the bill. “These types of keywords often have high purchase intent,” Kim says. “They might need to replace a broken water heater right away, which means higher conversions from lead to sale.” That’s why bidding on phrases like “leaky roof” can get expensive: A single conversion might be worth thousands of dollars to the buyer. You can use the Google Traffic Estimator Tool to get a sense of keyword costs. “Leaky roof” will run you around $1.24 per click in the Boston area right now, for example. A roofer that generates a 30 percent margin on a $15,000 sale would likely do well to buy that keyword, assuming a typical two-percent conversion rate. Better yet, Kim says that search will likely convert at an above-average rate because “the guy who is searching for ‘leaky roof’ probably has a leaky roof and isn’t happy about it.” Thus, PPC ads can support small businesses that generate high margins on a single purchase or high lifetime revenue from a single client, as well as those that benefit from high purchase intent.

Sellers of Hard-to-Find Products and Services. Small businesses that fill a particular market niche often achieve strong results with PPC. Kim notes there are thousands of possible examples here, from used tractors to customized uniforms. “Consumers generally rely on search engines to research and purchase hard-to find items that aren’t carried in the local Walmart,” Kim says.

Software Companies. “We’ve found that a lot successful PPC advertisers are actually small software companies,” Kim says. “Software can be a perfect fit for PPC because users are often looking for specific features and functions, like an XML editing tool, but might not know where to get them.” Another reason: Software typically doesn’t cost much, if anything, to ship. That can lead to those higher margins mentioned above.

PPC Advertising May Disappoint If …

Your profit margins are razor-thin. The flip side of the high-margin, high-value conversion: “PPC can be quite competitive and, on average, we see that just two percent of clicks will typically convert into prospects or sales,” Kim says. “If you’re dealing with very small margins on inexpensive products, PPC sometimes just isn’t a viable advertising option.”

You’re targeting a specific type of customer. Businesses with products or services — especially brand-new ones — that don’t fit neatly into established search categories sometimes struggle with AdWords. That’s because those businesses are often better served targeting a specific type of person or interest rather than keywords. “While Google has recently rolled out some targeting features based on demographics and interests, it can still be challenging to get the cost-per-conversion metrics to work out to be a reasonable number,” Kim says.

You have no idea whether you’re getting results. A big mistake some small businesses make with online advertising is to lay out the cash and just hope for the best, rather than tracking whether those clicks are actually paying off. AdWords offers some basic help here, but there’s a growing menu of options — some of which cost money, some of which don’t — for businesses that want to delve deeper into their performance. WordStream, for one, offers a free AdWords Performance Grader. How you track and optimize your campaigns is up to you; the important thing is that you do it. Otherwise, you’re probably wasting money.