Does accountable pricing help SMBs?

Now that advertisers can purchase online ads on a CPC, CPA or CPL basis, many small and midsize businesses can place ads next to larger corporate entities. Experts debate the strength of that advantage.

Zephrin Lasker
Co-founder and CEO, Pontiflex
Ten-year veteran of online marketing; founder of The North Road Group

In tough economic times, small businesses with limited marketing budgets need to focus on maximizing returns. Marketing lead campaigns are a cost-effective way for these businesses to connect with consumers that are interested in their offer.

In contrast to sales leads that are sold to multiple vendors, marketing leads are generated for a particular brand. Consequently, they are highly qualified and are more likely to convert — be it for a newsletter list, loyalty program or a sales force effort.

There are three pricing models through which businesses can generate marketing leads. They can purchase impressions through cost-per-thousand (CPM) pricing and cost-per-click (CPC) campaigns.

In both cases, prospects click on an ad and are taken to a form that he or she fills out, giving the business a lead. Unfortunately, the business has to pay for a large number of impressions and clicks that might never convert.

Cost-per-lead (CPL) pricing models solve this problem by allowing advertis­ers to pay only for leads. However, businesses deploying CPL campaigns to generate marketing leads must ensure that they know where their offers are running. This allows advertis­ers to optimize campaigns by publisher. Advertisers can also select publishers based on relevancy and garner quali­fied leads.

Troy Lerner
Director of SEM, The Booyah Agency
Former head of busi­ness development for search at Avenue A / Razorfish

Underneath all of the pricing models is the same assumption—the advertiser that converts the best and with the highest margin wins.

In cost-per-acquisition (CPA) and CPC models, if advertiser X converts at twice the rate of advertiser Y then advertiser X can afford to pay double the CPA or CPC of advertiser Y. In this case, advertiser X wins.

So, it is not simply the pricing model that allows small and midsize advertis­ers to compete against large nationals in search. Instead, it is the ability to throttle budget up and down inside of those models.

For example, let’s assume that small guy and big guy can both afford a $100 CPA. In print media, the big guy can buy a $100,000 ad in The Wall Street Journal that drives $100 acquisitions. The small guy would like to do that too, but he can’t get over the $100,000 investment. In search marketing, the small guy can invest $500 in a cam­paign. The big guy can invest $500,000 in a very similar campaign. They both get $100 CPA until their money runs out. Both are happy.

That simple example aside, there are many reasons why the big buys are bet­ter off in search than the smaller guys. Often, companies with larger budgets can invest more in their keyword plan­ning, SEO and keyword conversion analytics to help them plan search spend more effectively.

Lasker contends that lead-driven buys provide the most organic growth for a small business. One could argue that this logic neglects cost-per-acquisition, which unlike cost-per-lead already guarantees some sales Lerner looks beyond the pricing model question, drilling down to a more fundamental concern for small business: conversion.

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