In this article, we will apply principles learned from our sales experience before and after launching our agency more than 15 years ago. We will include examples to explain the points raised.

Just because a discount can be done does not automatically make it a good idea. If an established business lowers their revenue stream from their everyday existing products or services without having a specific goal in mind, they may work harder, yet suffer a loss in revenue.

Point #1: Why / When to Discount

A good starting point is to take a high-level assessment of your business situation. Are your working with a new business launching a new product or service? Or a mature business with a specific, tactical goal you need to accomplish? Or something in between?

Example Business Situations

• Starting a new business to sell a product, a service or both
• Existing business needing to gain market share or launching a new product or new service territory
• Need to reduce excess or short-dated products, or utilize excess capacity
• Service business needing to get more leads to keep their employees busy during an annual slow season
• Mature business need to achieve a specific goal such as to increase Return on Ad Spend (ROAS) without lowering current sales volume.
• Promote a seasonal product or holiday

2 Key Initial Questions: What incremental activity or outcome is needed? What possible pitfalls that need to be avoided?

Point #2: What / How Much To Discount

• Dollars off are not always the only or best way to promote
• One key reason: discounting the selling price has a larger effect on gross profit, because selling price includes the cost of goods.
• Sometimes including a free related service or product with a required purchase has higher perceived value to a customer than a $ discount
• Calculate how existing sales volume and revenue will be impacted. More on this below.
• List what non-desired outcomes might be possible, and how to avoid or mitigate those.

How Much Does a 10% Discount Cost the Seller in profits? The answer depends on several factors: The overall cost for discounting a new product with no existing sales is less than the impact on existing product movement and its revenue. Refer to “The Calculation” section below that includes cost of goods.

Business Scenario: A mature snack food manufacture has a new product to launch and promote.

• Mature snack manufacturer with 10 current products (SKUs), and steady monthly wholesale sales of $100K (at full price).
• Manufacturer direct cost of goods and production is 50% of their selling price.
• Manufacturer is about to launch their 11^th product (SKU).
• All their snack products are perishable, and have a 90-day shelf life before expiring.
• The manufacturer’s customer (distributors) put the product in retail stores.
• The distributors also pick up expired products from the stores, and “charge back” the manufacturer for products that are unsold and expired.
• Distributors will often aggressively “forward buy” at the end of a discount period, then buy less than normal in subsequent months. This pads their margins, but the manufacturer gets no benefit and some unwanted issues.
• Their distributor is requesting a “customary line drive of 10%, 30 days” for all 11 products, saying it will increase excitement and sell more product overall.

Manufacturer’s tactical goals

• Get shelf space for the new product in the stores
• Get existing and new retail customers to try the new product.
• Jump start sales by generating retail excitement and incremental displays.

Pitfalls to be Avoided

• Losing revenue on existing product orders, that the manufacturer would otherwise get at full price.
• Losing revenue on existing product orders after the promo, due to forward (discounted) buying from distributors near the end of the promo period.
• Increase in manufacturer charge backs from retail stores starting 90 days after the promo ends due to forward buying by distributors and resulting increase in stale products.
• Possible retail price and profit margin erosion on the existing line, due to discounting too frequently.

Simple Example of The Calculation:

The calculation needs to take the cost of goods into account.

How much does the proposed 10%, 30-day discount of the manufacturer’s full line of products affect their profits?

• $100,000 x .50 ( to cover cost of goods) = $50,000 gross profit per month at full price.
• 10% discount on $100,000 in product sales = $10,000 less revenue. So, before any incremental revenue, and with the 10% off the selling price, cost of goods stays the same, but gross profit is now $40,000.
• Stated another way, 10% of all existing sales in one month = 20% reduction in monthly Gross Profit, due to cost of goods.

To break even (get at least $50,000 in gross profit) at a 10% lower selling price requires the discounted promo to generate $125,000 ($25,000 or 25% more in increments sales volume) over the same period.

How much does discounting the single new product cost?

There are more variables here, but it the impact of discounting a new product is less. The difference is there is no existing revenue stream that gets discounted. Cost of goods still matter, but with a new product, it is important to jump start customer purchases. Especially on a product with a relatively short shelf life.

The Plan:

Existing products: No discount – it does not make sense to discount existing products just because a new product is being launched.

New product: Deeper discount than requested on the new product (that has no current volume). Make it 33% off or a BOGO rather than a mundane 10% that generates little excitement. This will hopefully show support for the new product to the distributor, and the discount is deep enough to get retailers to create a stack or endcap display. These help generate incremental volume needed.

TopSide Media’s Summary of Top 5 Steps

1. Assess your business situation, and define the specific goal you need to accomplish
2. Define the outcome(s) you want to avoid (pitfalls)
3. Plan the sale / promotion to accomplish 1 and 2
4. Execute the promotion
5. Recap and document the results for future use

Our next blog post, part 3 of 3 in this series, will be on customer intent in search keywords, and custom intent audiences in display ads. If you have questions or experiences to share on discounting, please let us know.

When we began our agency in 2005, some of the best advice we received was this: the first goal of business is to stay in business. And, to stay in business: have a plan, and avoid blunders. Avoiding math blunders in client work is a basic and useful business concept.

Today, we will focus on three commonly misunderstood metrics: Markup, Margin, Return on Ad Spend (ROAS).

Below are practical definitions in business math. Understanding their differences is key to avoiding mistakes that would certainly be embarrassing, and could potentially be devasting business math blunders.

Markup and Margin are two different perspectives on the same process: the costs a business bears, and how that cost relates to the selling price received from their products or services.

Markup (cost perspective)

Definition: In commerce, Markup is the amount added to the cost of goods or services a business bears. Together, the cost of goods (or services), plus the markup equals the selling price.

Margin (selling price perspective)

Definition: In commerce, Margin is the portion of the selling price (usually expressed as a percentage) that was added to the cost. Stated another way: Margin is the percentage of the selling price that is profit.

A business math mantra: Markup on Cost // Margin on Sell.

To remember forever, chant the following mantra over and over to the cadence of “follow the yellow brick road” from the Wizard of Oz: Markup on Cost – Margin on Sell.

Simplified Scenario for Markup and Margin of a product:

Cost of a product to sell is simpler to determine than costs of providing a service to customers. So, in the simple example below, our Merchant buys a product for $10 and sells it for $20. How much is their markup, and how much is their margin?

Markup = 100%. (The merchant’s product cost of $10 has $10 of markup added, to create a selling price of $20. ($20 – $10) / $10) x 100 = 100%

Margin = 50%. (The merchants selling price is $20, with cost of $10. The retail margin is $10/20 x100 = 50%.

Return On Ad Spend (ROAS)

There are many levels at which ROAS can be calculated. The reason: there are direct and indirect costs of operating a business to sell a product or a service. These are sometimes called hard and soft costs, respectively. Therefore, profits can be stated in different ways, including Gross profit and Net Profit.

General Formula

$Value of a Transaction (actual selling price, or lifetime value of a customer) divided by the $cost to generate that transaction. This can be expressed as either a multiplier, or a %. Also, it can include only the direct cost, or deeper costs can be included. And it can be calculated at a granular level, or as an average of transactions in specific period of time.

Examples of ROAS: Product and Services

Ecommerce

Ecommerce is the purest form of PPC advertising, and ROAS can be tracked, down to the keyword level. For both products and services, PPC ROAS — correctly done — is an amazingly powerful tool. In PPC advertising, the metric named Conv. Value / Cost provides a basic, high-level view of Return on Ad Spend or ROAS.

A product being advertised online has a selling price of $90. If it takes $10 in ad traffic cost to generate the sale of one item, then $90/$10 = a top line ROAS of 9x or 900%. Each dollar spent in ad traffic generates $9 in top line sales.

For deeper reporting and goal setting, the cost of goods and other business costs can be included in the calculation, and also the agency cost. There are other variables to keep in mind, such as the fact that receipts (a.k.a. “tickets”) often include multiple-item purchases, product shipping costs, etc.

Generation of Leads

ROAS can also be calculated on lead generation, but it is more complex. For this, we compare the cost of generating a lead, transaction or customer, to the average $value of a transaction. Or better yet, to the average lifetime value of a customer.

Calculating the initial cost per lead is first step. For many businesses, including incoming phone leads for ad traffic along with online leads helps complete the picture of cost per initial (raw) lead. The next step is the average of how many leads it takes to generate a lead that meets certain sales criteria (qualified lead). And finally, calculating the cost to generate a sale or customer. For services or products with longer sales cycles, this is a reason to have a customer relationship management (CRM) system

TopSide Media’s Top 5 Tips

1. Memorize the Markup / Margin / Yellow Brick Road Mantra.
2. To correctly frame discussions and reporting related to Markup, Margin, and ROAS, gain a deeper understanding of direct and indirect cost of operating businesses you are involved with, along with their categories.
3. Ecommerce ROAS is the purest calculation, and can be done at a top line, or deeper levels.
4. To calculate ROAS in PPC advertising, conversion tracking must accurately capture the $value of the transaction. This often requires programming skills, can be complex.
5. ROAS can also be calculated on lead generation for products and services, and that requires longer and more involved tracking. Depending on the length of the sales cycle and customer lifetime value, a CRM can be set up.

The next two articles in this series will be on discounting, and customer intent.

We hope you find these useful. If you have questions or comments on these topics, please let us know.

Rarely do advertisers have unlimited ad budgets, even if they get a very high return on their ad spend, or great cash flow. Rather, most businesses have a fixed, planned maximum budget. And even if their business model and budgets are somewhat scalable, their business may run into limits on personnel, supplies, inventory, etc.

Yet, fairly often we get questions from clients about advertising a new topic, keyword or in a new geographic area. When we receive such a request, our agency repeats a step that we do while designing and building a new PPC account and related settings such as campaigns, keywords, demographic filters, etc. That step:

We calculate whether there is more search traffic than ad budget, or the reverse of that. Usually, the answer is “more traffic than budget”. In a running search ad campaign, the amount of traffic not reached due to budget is called Search Lost Impression Share Budget (Search Lost I.S. Budget).

Big picture: when there is more traffic than budget

When asked, most advertisers will answer that they want to spend their ad budget on the most productive topics — the ones that most efficiently convert traffic and ad budget to leads and purchases. A couple of key concepts: (1) set up campaigns so that topics of similar value compete for budget, and (2) like the old adage for stock accounts – let the winners run, and get rid of the low performers.

Big picture: when there is more budget than traffic

Unlike most types of advertising, in search ad campaigns it is possible to have more available daily  budget than traffic for lower search volume topics. Often the keywords or topics with the most precise customer intent (thus highest value) are limited in search volume. This is especially true for businesses that are local or regional in geographic coverage. For that reasons, we will often assign a dedicated campaign (thus search budget) to the most precise or highest value search topics.  When there more budget than search traffic (or optimized search traffic for some types of bidding tactics) then funds not needed simply don’t get used.

Now back to requests / ideas for new topics

In a scenario where the account budget is fixed and all being used, and traffic for new topic, or geographic territory is added, budget will be diverted from the previous keywords or geographic territory to “feed” the new one.  And, while it is true that well-designed testing of settings is a best practice, often we have data, or can forecast that the new topic may not work as well as the others that are already running. One of the more frequent reasons for this: the new topic or keyword being requested is either not present, or not well developed on the advertiser’s website. Getting on to action points, we’ll close this post with the following list:

TopSide’s Quick 5-point checklist when considering new search topics or keywords:

• Does the topic or keyword being considered get enough search volume in the geographic area covered by your business to make a positive impact?
• If the answer to #1 is Yes, is that topic present in text and well developed on your business website? If No, are you willing to add / have it added to the website?
• Is there a clear call-to-action and well-designed “conversion path” for the new topic on its page?
• Is the topic a new ongoing one, or a short-lived event? (The minimum traffic and run time needed to optimize for results is often months, not weeks or days.)
• Is there more traffic than current budget for your ad account? If Yes, are you willing to give up some of your current leads or online orders to test the new topic? If not, consider assigning an additional, dedicated budget for the new topic.

Comments or questions on this topic are welcome.

Have you ever tried to read a township, range, and section legal description for real property? Or find one on a map? At first glance, these are vexing to say the least. They must have been created for surveyors, or maybe lawyers, but not for layman.

However, there is an insider’s trick to reading one: read it backwards. Here’s an example: The NW 1/4 of the SE 1/4 of Section 5, T3N, R11E. To locate this property on a map, it is far easier to start on the right side, at the range, and then work backward to the left, through the township, section and so on, until you arrive at the parcel you are seeking.

Start with the end result from online ads

We can use a similar approach to understand search engine advertising. Most advertisers notice or ask about the user-facing elements from PPC, such as keywords or ads. To understand online advertising faster, and to avoid getting bogged down in details, a business owner should focus first and mostly on the desired outcome.

For most advertisers, the desired outcome from website traffic is either a lead or a purchase. Some sites have business categories that need both. Leads and purchases can come in online or through incoming phone calls. These desired actions from websites are generally known as conversions.

A quick heads up: one assumption I’m making here is that you have conversion tracking correctly set up on your website. If not, make sure you have this done as a first step.  Reliable conversion tracking is key to the whole process.

At this point, we’ll outline purchases and leads, and use bullet points for easier reading.

Online purchases, reservations, etc (a.k.a. ecommerce)

• Ecommerce is the purest form of online advertising. PPC ads are ideally suited for it.
• With the right kind of shopping cart and PPC + analytics settings, we can automatically compare the dollar value of the online sale to the dollar cost of ad spend. This calculates your return on ad spend.
• If you need to understand the process in more detail, you can work right to left – from online purchase back through the campaign, ad group, ad and keyword that generated the purchase.
• It’s straightforward to measure initial return on ad spend. It takes more input to project the average lifetime value of customers that are acquired. But it’s important action to take.

Online leads: contact forms or incoming calls

• Leads can be online forms, email opt-ins or other click-based actions
• Leads can also take the form of incoming phone calls.
• Tracking phone numbers are an easy way to segment calls and count incoming calls from various sources of traffic to your website.
• If you measure incoming calls, insist on having the duplicate calls removed and filter out calls that are too short to be useful.
• If appropriate for your business, have calls recorded so you can get a better understanding of what potential customers are asking for and how your company representatives handled the opportunity.

Article 1 in a series of 3

This is part 1 of a 3 part blog series on conversions. The next two will dive into other topics related to creating and counting leads and purchases from websites. If you have a recent experience with this topic, please share it with us.

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McNeil, TX 78651

From our new location, TopSide Media will continue to provide top notch search marketing and PPC management services to clients in Austin, Round Rock and nationwide.

This can happen to any type of business, if the person who responsible for the website does not know the right questions to ask to avoid the gotchas. We see this issue in specific verticals such as auto parts or marinas, but it can happen in any situation where the website builder or provider also serves as the website hosting company.

The basic questions
To get to the core of the matter quickly, ask the following questions:
(1) When I get ready to move my website from your hosting, what (if any) parts can I take with me for no extra cost?
(2) Can any competent webmaster use the files you provide and easily recreate our website to work at a different web hosting company?
(3) Is the website built upon an open source platform such as WordPress, Drupal, or Joomla? If so, what is the number of the version? If not, what platform is it built upon?

Breaking a website down into pieces
Here are the related main components you need to be aware of: Domain Name; Website Hosting Account; Website Platform/Structure; Images; and Text Content. Big picture, you need to maintain ownership and administrative login access to all of these components. Of course, you may need to share access to them with your webmaster, but always keep current admin level logins in case he/she cannot be located, etc.

If you cannot afford to have a website built that you own, you may have to start over to move your website to another host.

A recent example
A building contractor here in Austin recently called us and said that one of the largest national companies that provides local advertising was “holding my website hostage”. The contractor wanted to switch ad providers and work with us to get leads from search engine ads. However, this large web company was his web host, webmaster, and provider of traffic from online ads. Turns out that his website was built on a proprietary platform that the advertising company owned. Upon reading the fine print of his contract, the construction company owner learned to his dismay that after much effort, all he could move without a major technical effort was the text content that he had written.The upshot: he was renting — not owning — most of his website, but was not aware of it.

The stage on which we operate today
The quantity of information and delivery devices is exploding, but the hours in the day to process information (and determine what is useful) stay the same. This has been becoming increasingly evident in the tools we use and in working with our clients, who are mostly owners of small to medium sized businesses. Also, I began to pay more attention when I am in public. I’ve started to notice people staring at PDAs, driving distracted and one-handed while talking on their cell phone, and so on. Even when face to face with another human being, a surprising number of individuals will disengage to read their email or text messages, or look at FB. Not only if they are expecting something time sensitive — which we all sometimes have to do. Nope, just to check in. So, they check out in person so they can check in online, all the while being amazed that their device or program gets more intuitive.

Finding what you need can still be more difficult than it should
How happy are you with the results you find when you search online? Two recent but unrelated experiences I had prompted this post. They were: a- looking for an online collaboration tool to use with remote colleagues and clients; and b- finding a local auto shop to install a specific type of shock absorbers on my car. The collaboration tool was inherently not local in nature, and the auto repair was just the opposite. Without going into excruciating detail on these, I’ll summarize by saying: a- even with a deep understanding of search queries and search results pages, both tasks took way more time than they should have; b- neither solution was eventually found in the way I expected; and c- in both cases, I found the solution by talking to experts — one on the phone and another in person. If this topic proves to have legs, I’ll write a follow up on these two examples and what didn’t / did work. But for now, I’ll go out on the limb of predictions that resulted from these experiences.

TopSide’s 5 observations or predictions for online products or services
1 – Website meta data will eventually include a new section for SEO: negative keywords — just like search engine advertising platforms do now. These will filter out natural results that are related, but not relevant for the site. All parties – searchers and publishers — would /will be better served.
2 – Search engines will eventually enhance results with what I’ll call “intent category” options. These will help you clarify what you need when your query will likely trigger mixed or poor results. (Example: your query for “Bilstein shocks” will prompt the question: Do you want to do research / compare features and benefits, get shocks installed locally, or buy them online? A better example: your query for “AC repair Austin” would prompt the question: “do you need AC repair for your car or dwelling?”
3 – Increasing overload in info and choices (and more competition for the all-important first page) will decrease the adoption rate of, and increase the cost of launching new products and services to a more significant degree. Like in an economic downturn, weaker or undercapitalized players will not get traction and drop out.
4 – Web related products and services will require increasing amounts of face-to-face or other real-time human interactions to get noticed or increased traction.
5 – Due to being manipulated or noisy, previously relied upon types of online rants, recommendations and posts will become decreasingly useful. Possible exceptions: a- topics that are inherently social in nature (pubs, restaurants, clubs, yoga classes, group activities, team sports, music, movies, etc.); b –topics that have very large amounts of input from users somehow proven to have actually purchased or used them.

One last prediction: computer users will increasingly opt out of services or settings that annoy or distract them.

We hope you find this post thought provoking, and welcome your comments.

We appreciate the recognition from Microsoft. Whenever there is a company or person in a spotlight, you can bet they have good support close by. Along those lines, we want to thank our account representative, Ed, for the top-notch support he provides for us and our advertisers. Since Yahoo’s search advertising program was included last fall, he’s helped our TopSide team make a smooth and effective transition to the combined adCenter platform.

As you likely know, having the ability to track conversions (desired customers actions) on your website is a key benefit of search marketing. With online ads, we can track conversions back to the keyword that triggered them. In order to track conversions, small snippets of code have to be placed in the source code of certain pages. Website analytics code and phone number substitution code (for segmenting and tracking phone calls from web traffic) go all pages. PPC conversion tracking code from Google AdWords or Microsoft AdCenter goes on specific pages that we designate as conversions. Examples of online conversions: receipt page after online purchase; thank you page after a form submission, etc.

Normally, when we work directly with an advertiser’s webmaster, we supply the snippets of code needed for their situation, and the webmaster inserts the codes without undue effort. However, lately we’ve had some clients whose website is not managed by a qualified webmaster. Instead, these websites are built on proprietary website platforms, and a surprising number of these don’t accommodate conversion tracking codes. Or the platform owner/provider has employees who don’t know what conversion tracking is, can’t follow well-written instructions, or are so overworked that they can’t get these basic requests done in reasonable time. The result: routine website tasks related to conversion tracking – ones that should take one email and a few days at most – are either not possible or end up taking weeks and dozens of emails and phone calls.

What Is A Proprietary Platform?
A proprietary platform is a way to build websites where the underlying structure is built, owned or controlled by a private entity other than you. This entity usually owns the structure and controls what and how changes can be made. In many cases, using one of these is similar to renting vs. owning your home. You have to call the landlord to ask for certain tasks to be done, and they do them if and when they want. Like a rental property, when you decide to leave, the underlying framework and structure of your website stays with the owner. This is a strategic decision for your website, and there are a lot of potential wiggles in the details. Tread carefully if you are considering one of these.

Examples of proprietary platforms can be ecommerce or shopping cart websites, template built websites, or vertical specific sites with features geared for one industry. One would think that no matter how the platform is constructed, its architect would have included provisions to get something as essential as conversion tracking codes added easily. To be fair, not all proprietary platforms have this problem. We do know of notable exceptions. However, our usual advice regarding platforms is this: unless you have a compelling reason to use a proprietary website platform, go with a an open source platform that you own –not rent– and that you and your webmaster can control. More on this below.

More Good Reasons To Use An Open Source Platform For Your Website
For most businesses that need a simple website, WordPress makes a good choice for a platform. For more complex websites, Drupal (or Joomla) would be recommended platforms. With either of these, you own the structure of your website, and you can easily get tracking codes added. You can also make changes to existing content or add pages of content yourself. When you get ready to change webmasters, it’s easier to find one who works with one of these platforms.

if you have had a related experience with this, let us hear from you.

Before doing that, I’ll provide a bit of background. The category of inbound links comprises a major part of what is known as off page SEO. These are basically references or mentions that point to (link to) your website. The search engines look at these back links as votes of confidence and relevance. In contrast, the other “half” of search engine optimization is called on page SEO, which are changes to the structure or content of your website to make it more friendly to search engines. Of course, it must be engaging and useful to your readers too, or they will bounce off or not convert to customers.

To help explain SEO to those less familiar with it, I often compare it to our legal system. In our legal system, we have the “spirit” of the law, which is to help maintain an free, orderly, and productive society. Then, we have the “letter“ of the law, made up of fine print, excruciating details, and sometimes include knee-jerk reactions to current events or trends.

Fortunately, the “spirit” of the Internet and search engine algorithms approach to it have not changed that much in the 6 years I’ve been fully engaged in SEM. Then, and now, one of the better ways to get more inbound links, more traffic, and higher search engine ranking is to provide original, useful content and resources on your website. This can be a product or service comparison table, a calculator specific to your business, a how-to video, etc. Videos are more versatile because you can post them on YouTube and on your website. When others in your industry and your customers or clients find and use your original content, they will naturally link to it and tell others about it.

High quality inbound links can also come from these sources:
– Associations (trade or professional) that you belong to
– Friendly competitors or colleagues in related industries with high quality websites
– Online news releases (real newsworthy stuff – not contrived spammy releases)
– White papers in relevant trade journals
– Authority directories, such as the Yahoo Directory
– Directories specific to your industry
– Local directories and maps, if appropriate
– Meaningful posts on other blogs that are relevant to your business

In contrast to the relevant examples above, way too many resources get used to create links that are from meaningless or irrelevant websites or from spammy blog comments that don’t add anything useful to online conversations. These nebulous “citations” remind me of the category of performance enhancing drugs. To some extent these tactics still work, but once exposed, the penalties can be severe. A recent business blog in the New York Times titled “The Dirty Little Secrets of Search” tells a related story about a well-known U.S. retailer. Check it out.