When it comes to Search Engine Marketing (SEM), one of the most common issues we face as professionals is to choose what's best for our client. Adwords or Search Engine Optimization (SEO)? Here is a complete - in depth – analysis that explains the benefits and disadvantages of each tool. We provide real-life examples with cost comparisons and teach everyone when these two can be used together or separately, depending on your business and marketing goal.
What is AdWords
AdWords is part of Google AdSense. The advertising platform that serves millions of businesses across the globe, for more than 15 years, and brought Google (Alphabet INC) to today's market position. Google is one of the top 10 most powerful and wealthy companies in the world, with profits getting close to 1 trillion dollars. Guess where this money is coming from? Well, the main revenue source is Google Ads, or Google Adwords. Whenever you type something on Google in search of a restaurant or a doctor nearby, the ads that appear on the top 3-4 results and on the bottom and at the side, and, and, and...pfff all these are paid ads. A business paid from $1/click up to $150/click in order to appear in that position and gain from your click. Regardless though if you are going to do business with them or not, Google gets their precious money. Sounds bad? Well, it isn’t and let's see why:
Fast explanation about the cost of an ad:
If you are new to digital marketing, you may have heard people talking about Pay Per Click (PPC) or CPC, bids and campaigns without knowing what these mean. Each keyword that you type in Google i.e. Italian Restaurant nearby, is part of this large advertising platform. So, when you search for something, Google needs to come up with some results on top (and bottom, and side, and in between, etc). These results are based on which of the businesses that bid (yes, there is actual bidding going on) won the position. Based on the complexity and the market of the keywords, based on the area that you are googling from (this is also a very important factor) and in another bunch of serious statistics (i.e. time of the day, age group, educational level, financial situation etc), a keyword bidding can go from a dollar up to hundreds.
When we need SEM
Search Engine Marketing is needed for every single business that is up and running. The time has passed that someone needs to learn why to advertise on the web or why they need to take good care of their website, content, etc. If there are still business owners that don't understand that, soon they will be out of business. Nothing further to analyze or to expand on. Now, what's happening with the rest of the world? How often a business needs to use SEM and how important is it?
Based on the type of business, the brand name, the locality and the customers/clients targeting a business may need to use SEM once per year up to everyday. Examples following:
Local hairdresser in a small area: Doesn't need to do any SEM since there is no competition (easy answer right?). Well, not so easy. At least once or twice per year they need to remind customers about special offers, about how nice the spring season is, about changing your look or more generic messages i.e. 'make your hair healthier with the xxx product'. Even in a super-tiny market a hair salon has competition from the local CVS if they are selling their products, so - yes - they need to do SEM.
On a more “normal” scale, in a city like New York or areas like Long Island or New Jersey, there are 60 million people around, looking for absolutely everything and anything all the time. The amount of Google searches per day in the Tri-state area is around a billion Per day! There is no question if a business should do SEM, but instead the same as this post title, “Paid ads or SEO?”
Any paid ad campaign will profit immediately and as long as it runs most of the businesses. Regardless if you are selling cars or tickets to a basketball game, flowers or self-esteem, there is an audience and potential customers for you. In order to run an ad, you should prepare it the best way possible - attention requires serious skills. Part of this preparation is to create the ad itself, to write the content, make it appealing for users to click, and probably create a promotion within. The most successful ads are for products or giveaways. Let's say you sell the X29 product and for some reason you’re left with a huge stock.
What's better than to place a Google ad, so whoever is looking for this product will buy it from you until the stock is over. Or let's say that you own a restaurant, and there are days in the week i.e. Mon. – Thu. when business is slow. Why not create a local ad and have people come into your place?
And here come the metrics. How much did you spend for the ad? How much did you profit from the ad? Was it worth it?
Very few people (probably only a few hundred) can honestly answer this question. You see, the theory and the actual calculations are two different things. In our example - the guy with the products - looks pretty simple. If he made a Y amount of revenue, driving a Z amount of people with an X amount of PPC then you can easily come to a conclusion. A real conclusion though? The problem is that nobody knows if any of these deal-seeking clients will ever buy from him again. The other problem is if his business was prepared to ship 1000 products in few days or hours.
The big problem is what was the real - absolutely real - cost. By that I mean that you sell so many products - great! - but someone needs to prepare, pack, invoice and ship them. Do you have enough people to do the job or will other clients be abandoned? Maybe - the worst I've seen so many times - instead of earning fast cash, your business ends up with multiple negative due to its inability to handle all these flash-sales? I guess you got my point, and there is no need to expand further on paid ads.
Now, let's see what's going on with SEO.
How SEO Works
Search Engine Optimization requires a lot of things to be done, in order to bring results and create real traffic and profit for a business. I'm not going to get into technical details about the perfect website - including SEO - because it is another story. An older version you can read here and here. The truth is that SEO requires a minimum of 3 months in order to have some results, and at least 6 months in order for these results to be serious. Real improvement (increase of revenue on a large scale) starts to show after 9 months usually and requires continued improvement and tweaking in order to stay ahead of the competition.
From the above description alone it is more than obvious that if a business isn’t already doing SEO or have a high visibility in search terms, it's impossible to use it for a flash-sale. The same goes for anything that is fast and one-time only. SEO though comes handy for all the other type of businesses activities. If for example you are an attorney, people will always look for the same keyword. Same goes for a restaurant, printing or interior design company. At the end of the day if you want to convince someone to click on your page - even if you are not 1st on the top of Google results - just add a special offer, a deal, or catchy content.
Think of yourself when you are 'googling' something. You always have a look at the - at least - 5 top results. Statistics say that 85% of the people are reading the top 10 results, while 97% of them are clicking on at least one.
SEO then is more for long term results, but what about the costs? When it comes to comparisons this is what everyone mostly cares about, right?
For that reason, I prepared a real-life example taken from one of our clients. For privacy reasons of course I removed everything that is related to the business or the industry, but you will easily understand the example and see the benefits for both SEM tools.
Business Sample:
National Level - B2B B2C Business with physical product and physical location
Comparison taken between Dec 16th 2016 - Dec 15th 2017
In this example we will examine a business that had some SEO on their website (before we took care of it) and was doing AdWords for more than a decade in order to promote their products.
On the graph below we can see the actual results of multiple optimized campaigns that took place over the last 12 months:
The way adwords works is like the stock market. By time, almost all the 'clicks' becomes more expensive and less profitable due to the competition. In order to avoid reading the whole table, here is the juice:
Money Spend in adwords (12 months): $207,137 (2,087 users with transactions)
Revenue came from adwords (12 months): $325,440
The specific company works with a 100% margin. Means that a product that they sell for $100 has a real cost for them of around $50. Easily you can see that from the above calculation the company lost around $80,000 from adwords and the revenue they got from them BUT at the same time they gain 2,087 new accounts! Interesting isn't it. So they had a cost per account of around $38 or (real cost without the revenue) $155 ! Now, it's on the company if they will profit further from these accounts in the future, in order to change the loss to real profits.
Let's take the REAL EXAMPLE of the same company from Search Engine Optimization we did for them:
It's obvious from the Google Analytics graph that the company compared to the previous year had an increase in traffic of 25.5% with an increase in revenue of 48.61%. In actuality let's brake down the numbers, how much did it cost for them and what is the unrealized gain or loss after this:
Cost of SEO for a year: $36,000
Other costs related to SEO: $4,200
Total SEO cost: $40,200 (1,886 users with transactions)
Revenue came from SEO: $359,040
Based on the above margin it's more than obvious that the company had a large percentage and net amount of profit coming out of SEO: $155,000. In addition to that if you see the organic results they keep climbing by month and in actuality the month of December are more than 50% up than last year's. So, as far as they continue investing in SEO they will keep having higher and better returns.
In a one to one comparison:
AdWords Real Cost per client:$155 | SEO Real Cost per client: $21
Conclusion
Someone will say that it's best to use SEO than adwords, it's cheaper, more profitable and makes more sense. Right? Well, it's not like that. The evaluation of each method is always based on how fast you want the results. Need something to be done tomorrow? Forget SEO. You have a long term strategy? SEO is the right answer. You need to have simultaneous increase in sales and profits? Play with both!
Thanks everyone for reading this long explanatory post, I hope it will help you to gain insights to one of the biggest questions in today's marketing. Feel always free to contact me for any direct answer to questions that may rise from the post.
About the author
John Varsamis
View author's profile
More posts from author
Senior Web Developer & Strategy Analyst. John is the head of the Design and Development team at TWE. Rewarded more than 30 international design & IT awards, since 1993 creates and builds the future for many businesses. With 2 BSc's and 1 MSc he can deliver any project on-time with great and unique results. His confident and knowledge of the web industry and his background on marketing helped many clients to increase their audience and traffic. John uses PHP & JQuery as basic programming, and he's also a Certified Microsoft Professional since 1995.
