credit: zenobia_joy

In yesterday’s post, guest blogger and CEO of BlitzLocal.com, Dennis Yu, tackled some important concepts of the local ad firm- specifically the fact that it is sure to kick the bucket in 2010 if industry professionals don’t take proactive steps as soon as possible. Part two of this story will address changes the future has in store for local ad agency fiscal models and a closer look at the crucial dynamics of this evolution.

How will the financial model of local adapt over time?

Firms can take a 50% margin until the market gets smart. Consider the current VC-funded, growth-oriented approach of a pretend composite company… we’ll call it SuperLocal, Inc.

Let’s break it down:

• SuperLocal has 250 employees and 5,000 clients that spend $1,000 a month.
• Assume that 150 of these 250 employees are in sales and each agent is able to manage 33 clients.
• That amounts to $400,000 in annual revenue per employee (33 clients that spend $12k per year, ignoring churn).
• If we assume that the firms allocates 50% of the client’s budget to actual spend, that’s $200,000 per gross margin per year per employee.
• However, the firm must also cover sales commissions at 15% ($60,000) and operations at 20% ($80,000), general overhead at 10% ($40,000)- leaving 5% as a profit margin.

Although this is a skinny profit margin, it is partially offset by scale and other efficiencies. Let’s examine each one in detail to see what the most efficient model could look like:

Economies of scale
The cost of operating a PPC platform should decrease as the number of clients you have in the system increases, as you can allocate over a larger user base. We can assume that operations, which consists of software expense (internally engineered or licensed technology), client support, credit card processing charges, and product development is perhaps 60% variable and 40% fixed costs. Thus, economies of scale will lower operations from 20% to a threshold of 12% (60% multiplied by 20%) at high volume.

Sales expense
Eliminating high-pressure sales tactics and having a greater reliance on word of mouth causes several cascading effects. The influx of ex-Yellow Pages salespeople who are making $100k+ a year is helping current firms achieve their acquisition targets, but at high per sale expense and high churn. Assuming an industry average tenure of five months (50% of clients stay for five months) for SuperLocal, Inc., the revenue per client is five months multiplied by $1,000- or $5,000. A 15% commission on that is $750. Should SuperLocal be able to deliver upon the product, it would seem quite feasible to double average lifetime value.

Thus, you could pay the sales agent half the commission rate while keeping their earnings the same. In fact, if you paid the agent based on retention and allowed them to interact beyond the initial sale, you would give them incentive to keep the client longer. Let’s assume that via product improvements, we can safely drop the commission to 10%.

Platform improvements
Even if we hold the percentage of spend constant at 50%, improvements in how campaigns are built, optimized, and automated should be able to squeeze out 50-70% percent improvements at the same budgets. This is based on our experience with clients that have come to us having been unsatisfied with larger market players. The secondary effect of automation and efficiency improvements is that the average employee can handle more clients.

SuperLocal employees should be able to handle triple the number of clients, given that they are not calling to complain as often; we are educating them on our processes, we are transparent in our reporting, and we set up alerts to notify them of performance improvements we’ve achieved. A 3x improvement may seem drastic until you consider what share of current client interaction stems from unhappy client calls.

The positive spiral effect of platform improvements is that the cost per sale decreases due to tenure improvements (clients stay longer), analyst coverage ratios (they can handle more clients), and automation of non-PPC functions not currently offered. Given higher performance, the company can now service clients who, at $500 a month, were previously not serviceable. Further, existing clients will spend more per month when they have greater ROI. Let’s assume that cuts operational expense in our model from 12% to 10% of gross spend.

Greater client satisfaction
One unnoticed side effect is that clients are less likely to go out of business. The current players are putting small businesses out of business, as these firms are unknowingly putting their last dollar on the roulette wheel and hoping for the best. Cigarette companies face the same issue with potentially killing their customers when they overuse the product. But great client satisfaction will not only help clients stay in business in a tough economy… it will encourage word of mouth effects. Consider Amazon.com- they don’t do any advertising—instead, they offer product marketing via free shipping and other consumer incentives.

Local lead gen companies can eliminate sales expense altogether when the leads come in from happy clients. If you conservatively assume that half of SuperLocal’s clients could come through referrals, we cut sales expenses from 10% to 5%. We can also lower operating costs if we create a social gaming system such that anybody is able to set up clients on the platform, thereby creating a local army of resellers.

The resulting new model is local lead gen

Let’s review what these implemented efficiencies do for SuperLocal and how it changes the model:

Holding media spend constant at 50%, we cut sales expense to 5% and operations to 10%. Even holding overhead fixed at 10%- we allow SuperLocal to inflate executive salaries and buy a shiny office tower– the firm’s gross margin still grows to 25%.

Further, since client tenure (how many months they stay on average) has doubled, the revenue per client is $10,000. The existing sales staff of 150 can now handle 15,000 clients, which is a three-fold improvement over the existing 5,000- this is due to operational improvements and no longer losing customers as fast as we gain them.

The company now has annual gross revenues of $180MM with only 250 employees, just about what ReachLocal has with 900 employees and just above MarchEx. We can even assume that as the company has expanded, they’ve been able to reach down to service lower price points, so let’s drop the average monthly spend to $750. And then assume that they increase percent of spend from 50% to 60%-  effectively sharing back part of the efficiency with their client base.

The gross revenue is reduced to $135MM and net margins fall to $20.25MM… still respectable.

The decrease in price points with automation and efficiency improvements is something our team at Yahoo! predicted 4 years ago- since initially, an improvement in efficiency will decrease spend, as clients are getting the same number of leads for less money. When advertisers are getting ROI, they tend to shift budgets into online channels after 3-5 months. Thus, spend follows a U-shaped curve when we implement efficiency improvements.

Finally, SuperLocal, Inc., has switched their pricing model to cost per call based on a ratecard of geography and category. This has caused them not to gain share from competitors- as there are no dominant players in local yet- but to grow awareness in the market, shed light on unethical business practices, and help force the bad actors out. When that happens, local lead generation will become safe, transparent, and effective- and the overall market will be able to grow healthily.

Transparency in the marketplace is something local online advertising companies should embrace now, rather than wait for the economic realities to force it upon them.

If there were a “Local Bill of Rights,”  this one would be ideal:

• Devote 70 cents of every dollar from clients to buying traffic.
• Show clients the same reports you see.
• Don’t have a direct sales force that hands off to an operations call center; your clients should talk to a trained analyst before and after the sale for greater efficiency and better service.
• Drive measurable performance—calls you can see and even listen to recordings of—as well as organic rankings you measure each month.
• Treat client’s money like it’s your money- so everyone in the company is paid based on client retention and feedback from your rating system.
• Grow the company with your own money- not venture capital- so you can grow at the proper pace and focus on the product, not sales growth.

Transparency leads to efficiency, which leads to the accrual of value in the hands of local resellers and maximum percentage ad spend for the client. The pending convergence of local, social, and mobile will create powerful products for local businesses that don’t cost an arm and a leg.

Opinions expressed in the article are those of the guest author and not necessarily aimClear.

photo credit: photoaf

By design, in-house and advertising agency clients can successfully take over day to day account basics after working with us to pilot, heal or massively improve missing, average or terribly broken PPC. Agencies & businesses just need reliable support (and intensive training) to fix existing accounts themselves. We’ve witnessed success in as little as 4 intensive weeks. That said, the full heat press is certainly not for wimps.

Though most pedigreed PPC companies are reticent to accept an Advertising Agency’s client’s PPC “trainee-shadow,” confident ones will. Why not? The client’s goal is to internalize their PPC capabilities, so nobody’s sacrificing a potential long term PPC manager engagement. In fact it’s more likely that we’ll earn a fine consulting client, tailor-made for our shop.

We’re willing to share actual production workflow on the clients account, slowed down as training and done right.  Essentially clients shadow the PPC team as we work on THEIR projects.  The results are usually wonderful and transformative.

The economy of scale is easy to see. For about the same cost as having the PPC agency unilaterally execute and deliver badly needed work (buy fish), our model is to offer hands-on training at the same time we do the work (teach to fish). Then our client learns the ability to self-maintain the program or knows when to ask for help. It’s a beautiful and effective model.

Full Heat Press
Light it up baby! Here’s a classic 4 week research, production and crash training/PPC orientation program, which supports in large and small businesses as they strive to internalize best-practices PPC.

We pilot campaigns in AdWords, given Google’s market share and quality of free tools. The second month (not outlined here) is spent teaching how to extend the now-proven campaigns (along with multi-channel conversion tracking) out to other channels including Bing, Yahoo, social PPC platforms (Facebook, MySpace, YouTube), content network, etc…

Week 1
Interview Client for deeper briefing on product, goals and big picture. Determine client’s in-house experience, creative, marketing, PR, human resource and technical capabilities. Deliverable is .doc file with results, recommendations (including any recommended hires) & executive briefing.

Audit any of client’s existing paid search and associated plans in any channel.  Audit paid/organic analytics, landing pages and conversion tracking to understand site’s organic intent. Teach client to perform competitive intelligence and train on associated free and paid tools. Help client select appropriate toolkit. Deliverable is .ppt slides with recommendations to improve or change. Train client as to the state and status of internal programs, strengths, weaknesses and build the PPC production plan.

Week 2
Train in-house team to practice modern keyword research, focused on identifying in market segments, sufficiently subdivided as consensus best PPC practices.  Teach the concept of quality score. Provide overview of various Keyword research tools and how to discern where good values and ROI are likely to be. Orient client as to Google’s Web AdWords UI. Deliverable is a tabbed.xls file of keywords divided by market segments, a list of channels, training and estimated PPC test spend.

Identify mainstream (YouTube, Twitter,) and niche’ social communities potentially susceptible to Client’s products, messages & brand.  Teach client to mine those conversations for insight into other market segments and associated keyword clusters. Deliverable is a tabbed.xls file of communities and their potential paid marketing value and training.

Week 3
Deploy boots on the ground GoogeAdwords PPC campaigns and/or augment existing ones. Implement conversion tracking to the extent client is technically capable.  Teach AdWord Editor; determine most appropriate API management bid and/or ROI based management tool(s) for what the client needs to accomplish. Purchase tools on behalf of client.

Week 4
Conduct multi-variate ad-message/landing page testing clinic. The objectives are: Determine best grid of keywords, text ads and landing pages, which aimClear creates and hosts (brandedSubdomain.Client.com. (If Client has qualified technology, they may move our the landing pages we create in-house, however aimClear is not responsible for technical reliability.

Landing pages can either be Client.aimclear.com or keyword.Client.com. The keyword.Client.com option is contingent on Client having capability to configure their DNS or we get administrative rights to do so. (The reason we do it this way is because the most common bottleneck is landing pages delayed for client resources we don’t control.)

Continue testing. Determine cost & ROI of ongoing program including recommendations for scaling the program to Yahoo, Bing and other channels.

photo credit: Diego Cupolo

In these risky financial times, some marketing executives who purchase SEO, PPC and Social services are exploring alternative business models for engaging and incenting vendors. One attractive option for mitigating financial risk and maximizing return, has always been pay-per-performance. So how does performance pricing fit in today’s brave new world of online marketing vendor services?

This SES San Jose panel, Performance Pricing Models: What Every CMO Must Know!” evaluated successful SEM campaign case studies contracted by this pricing model. Speakers also offered a thorough overview of the concept, applicability to various channels, key benefits, caveats and crucial success factors.

Andy Atkins-Krüger, Managing Director of WebCertain Global Ltd moderated the session [he originally wanted no blogging, tweeting or the sharing of information outside of the session].

Paul Wilson, Chief Revenue Officer, iProspect was up first
Paul asked the important question: “How many marketers were in the room and a large percentage were?“. Paul provided an overview of the performance based pricing concept.

• Most Important: remember that it’s a team effort
• Pros: alignment of goals, partner incentive, maximize performance, protection from non-performance
• Cons: constant monitoring, accurate tracking data (with responsibility defined), goals can change, decide between SEO and PPC, compensation for overperformance or underperformance
• Compensation suggestions: bonus targets, incremental fees, percentage of revenue
• How do you get started?
  • Define conversion metrics
  • Define value of the conversion
  • Factor in operating costs
  • Pressure text the metrics
• How to avoid situations that don’t work:
  • Start with at least 12 months of historical data
  • Establish a baseline for performance review
  • Establish value of conversion metric
  • Identify “What If” analysis – how better performance might improve the overall business model
  • Flexibility to adjust based on performance (or lack there of)
  • Write everything into the contract
  • Lastly, consider hybrid models that blend pricing structures

Paul indicated that about 5% of iProspects accounts are transitioning into some form of performance based pricing model.

Andrew Beckman, President of Location3 Media was up next. He identified the various types of deals they are engaged in, including cost per lead, per sale and revenue share with clients.

Management Fee

• Pro: Percentage is fixed
• Con: No incentive for the agency to perform; risk is solely on the advertiser paying a fee (which is not ties to a metric)

Performance Based Pricing

• Pro: Limited risk
• Pro: Agency pays for clicks and link building to generate effective leads
• Con: Client must provide access to all of their data

For PPC, Beckman’s company starts with a management fee based contract but then flips to performance based when appropriate. It’s dependent on goals, expectations and relationship.

• Necessities include historical PPC performance, seasonal data, creative arsenal, and landing page optimization.

For SEO, measurements can include increased organic search referral traffic (non-brand related), pay per submissions and the collection of inbound links and the quality of inbound links acquired. Beckman acknowledges that this is not a large percentage of their deals.

• Necessities include analytics, historical data (traffic, rankings and inbound link reports), creative arsenal

Key issues that often arise with CPA models

• Who gets credit for the actual sale/lead?
• What tools are used to benchmark performance?

Two Important Truths:

• Performance based campaigns require a cooperative relationship
• Agencies have an opportunity to earn more based on this model, since there is a financial incentive to do so.

Beckman’s last slide offered two final thoughts: “If they’re good, they know they have nothing to fear. If they’re smart, they know they could come out at the better end”

Finally, Vivek Bhargava, Managing Director of Communicate 2 [he acknowledges that he is holding us from tonight's beer]

• Bhargava believes “we know what we get paid for, but we don’t get paid for a lot of the things we do”.

He cautions of making assumptions too quickly.

Bhargava suggests that that there are other metrics that will provide value, such as time on site, repeat visitors, profile views or page views/visitor. Improving these metrics can still impact the clients’ bottom line. Some of these metrics have been used in contracts with clients working with Communicate 2.

In fact, EVERY project Communicate 2 works with has some form of performance based pricing built in; however the specific metrics they evaluate are unique per client.

Final Thoughts on the Session
Unfortunately, about half the audience was left unconvinced that performance based pricing would actually work. Here’s to hoping the Q&A and conversations after the session would help mitigate some of these concerns or at least leave the door open for further exploration.

Derek Edmond is a Managing Partner at KoMarketing Associates, providing B2B SEO, PPC & Social Media services for technology, industrial and professional services companies

aimClear is approached by traditional advertising agencies, often with rich history and too-often in stagnation or slight decline, seeking advice for growing online reputation as experts. Whether marketing regionally or nationally, it’s seriously powerful stuff to be perceived as an expert.

Though at least somewhat multi-faceted, many agencies have more experience in certain categories. Examples include health care marketing, travel, b2b, retail package design, education, web design, video production, outdoor products, etc… Your agency’s historical specialty is natural territory to stake out for thought-leadership.

There’s no secret sauce whatsoever. Successes stem from actually being an authority, a devoted willingness to share and a fanatical drive to build community by unselfish participation. There are no shortcuts.

Your website is a publication, not a brochure. Get ready to work incredibly hard, because this assignment is no less than becoming the definitive publication in your area of expertise. Having several thousand or more followers in any tight niche is an extremely powerful tool.

A website becomes a publication when the publisher (that’s you) holds content creation and scheduled release thereof, completely sacred- for months or even years. To pull off reflecting your inner thought leadership to the web, you’ll be posting content a minimum of 3 days per week until further notice. Half measures will avail you none.

Commit to daily category research for study and rebroadcast. Hands down the best way to become a go-to resource for readers who might become customers, is to have the edge of always being fully current.

This is not an endeavor to be taken lightly or relegated for 9-5 treatment. Start by making a list of dozens or even hundreds of definitive blogs, posts and authors to follow and share. The research serves double duty: keeping your knowledge totally current and caching great material to share with others.

Identify channels with obvious ROI for networking, sharing and essential learning opportunities. Learn the vernacular by weeks of consumption and lurking. When ready participate, share what you know and rebroadcast content you’ve uncovered. Let the friend making begin! Next week in part 2 of this post, we’ll share specific tactics to identify conversations, relevant to your expertise, in networking channels.

Spend any significant time on Twitter, Facebook, LinkedIn, Digg, Reddit, Delicious, StumbleUpon or hundreds of topically specific communities and you’ll note a common pattern. Users don’t just talk about personal items. They share content with the group in exchange for receiving reciprocal recommendations.

He/she who brings most useful and stimulating content to the dialog wins.

This is where your daily research comes in because that’s the content you share! Exchanging information is the foundation for socio-professional networking. Learn to walk the walk in order to gain respect as a leader in your space.

Give to others unconditionally (until it hurts) and then give some more. At the end of the day true thought leadership is about keeping up to the minute, as regards industry dirt, and having the depth/persona to add extra value by extrapolation.

Publish properly by recurrent content disseminated by feeds and advised by best SEO practices. WordPress is a terrific publishing platform choice and is open source so it won’t break the bank.

There are a number terrific of” how-to-blog blogs” out there so there’s no need to reinvent the wheel. Check out ProBlogger, CopyBlogger, TopRank and early SEOmoz for classic tactics to serve, delight, bait and engage users in community building tactics.

I’ve been in the advertising business in one capacity or another for the better part of 20 years. Without question the most versatile, hardest working, sharpest and committed bunch I’ve ever witnessed is made up of professional business bloggers. Feed based publication killed the newspaper God. Capture a bit of the mojo for your enterprise.

Share proprietary thinking and processes. Our company’s philosophy is built on the principle that anyone who’s really capable of competing with us will figure out what to do anyway without our help.

Therefore we might as well empower, inspire followers and have them ask us to be friends. Today’s follower is tomorrow’s customer, employee, vendor, fellow conference speaker and friend. Our blog’s readers bring us cool clients, job and friends.

Confident bloggers link to complimentary and non competitive resources in order to serve readerships. Power bloggers link to their competition. That said, don’t give away the store. Todd Malicoat told us, in a 2007 interview, “teach people to fish without giving away the fish bucket.” The Tao of unconditional sharing without sharing too much, is an acquired wisdom.

Brand by exclusion to stake out a niche’ that’s totally yours. If ever there was a time to shed the jack of all trades identity, this is it. Keep in mind that branding has as much to do with specialties excluded from the package.The old adage is that a clothing line specializing in northern, southern, eastern and western wear, is much harder to brand than only northern wear.

When I started aimClear, I made a decision to retire from my life-long personal and career passion: music. It helps that I love the online marketing industry as much as I do music, but the decision was deeply emotional. Measure focus by what you’re willing to give up. The returns can be incredible.

Evolve: The Ad Agency to Thought Leader
Be an actual authority by committing to research. Identify worthy channels, as indicated by possible return, for unconditional giving in your niche’. Publish properly, keep SEO in mind and spend time reading bloggers who are adept at inciting engagement by technique.

Don’t be afraid to really share valuable insight for readers. Exclude peripheral skills from your brand in order to achieve focus, or at least create the perception thereof. Above all get ready to some incredibly hard work along with the reciprocal return.

Like most SEM shops, our business is an amalgamation of flat rate products and hourly work. It’s generally been our focus to procure longer contracts, usually 6 month to 1-year agreements.

We thought it prudent to evolve our model in preemptive reaction to these brutal economic times.  Little did we know the unexpected gems of perspective we discovered.

Q1 2009, in the teeth of a recession, we actually accelerated growth by increasing the mix of short-term retainer & audit-and-plan deals we cut. These short-term “intake” agreements are converting to long-term relationships at a high rate, making it the best of all worlds.

Dependent on time tracking methods and using a software adapted (hacked) from law firms, in November 2008 we re-tooled aimClear to increase the mix of precision planning, traffic, time tracking (1/10th of an hour increments) and decreasing the term of initial client engagements from 1 year to 3 month retainers. The hard work was well worth it.

After achieving buy-in from staff and overcoming traditional obstacles, we noted some intriguing (if not revolutionary) advantages to focusing on a short term retainer agency-intake model which, though counterintuitive on the face, transcends recessionary stopgap measures. That said, there are both pros and cons.

Advantage to Short Retainer Intake

• Clients perceive agency as highly confident, not trying to lock them up long term. Since most SEM firms seek longer-term deals, it’s a competitive advantage in a space which is getting more crowded. The client gets a chance to evaluate us and vice versa. It’s a very powerful approach to take with a new client and comes off as seriously holistic. You get the long term deal anyway.
• Small initial budgets force the agency to increase efficiency, needing to do more for less which makes for happy customers and a better agency.
• Jobs are much easier to close, the higher hourly rate is much better tolerated in light of lower overall cost.
• Effectually, the agency gets paid to develop the larger job and deepen potential partnerships moving forward.
• Retainers to plan/begin projects lead to even more profitable flat rate & hourly jobs. Incremental tracking against projected sharpens the agency’s predictive instincts.
• Collection is less of an issue because we don’t start work until getting paid. Retainers are invoiced with an initial deposit against a maximum budget, absent client authorization for further expenditures. We re-invoice when retainer has 20% left, net 7. We return unexpended funds if a surplus remains at the end of term and/or job complete. It’s a very tidy model.
• Builds trust with client quickly by completing initial projects as promised.
• Builds shop confidence and fosters a can-do environment of completed projects and success.
• It’s an opportunity to showcase the shop’s technical business prowess. It takes a very organized advertising agency to render weekly statements against retainers sorted by job, employee, task, materials and travel–all against a budget. The message is in the method for the client who quickly comprehends how capable a business unit we are.
• There’s time to handle more clients, more case studies for internal training, more friends, more referrals, leads to more short term retainers, rinse and repeat.
• Client and agency have opportunity vet each other in short term crucible. Since there are fewer long deals with bad-fit clients, less friends are lost.
• Provides better opportunity to measure employee productivity.
• Diversifies client base to better insulate from effects of losing any single client.
• In this model, the agency essentially gets paid to audit-and-recommend, as opposed to spending unpaid time responding to RFPs. Back in the day, the agency needed to mock up creative, outline proposed campaigns and give away lots of work to get the gig. This is no longer the case. It’s hard to come by a search focused agency to trust. The ones that are good don’t plan projects for free.
• Agency experiences same or better revenue predictability, as with the “fewer clients / longer deals” model. Really can feel just as safe or safer.

Inherent Challenges

• Timecards can suck. aimClear needed to create a Twitter style front end for QuickBooks and find a way to have fun with it. It can be done with the right attitude.
• Achieving buy-in from staff is crucial. Attaining company-wide buy-in takes quite a bit of work.
• The “confidence” of a short term intake model can be intense. An agency has to have the chops to back up the confidence. A strategy based on more clients does not work if you can’t get more clients because all the short term intake deals fail. “Confidence” must be based on actually having the goods to deliver.
• In my experience, waiting until the end of the week to compile timecards just doesn’t work. It must be done real-time with an always-open control panel. Finding or building the right software takes work. Expect growing pains.
• Growth is required in how an agency segments SEM (SEO, PPC SMO & ORM) services. If anyone is interested in seeing how aimClear segments service skews for time tracking/invoicing, ping me.
• Live and die by time tracking. Take a week and send 5 team members to a conference in New York, forget each employee’s need to clock billables, and the month could be gutted. Besides, it’s not just about getting hours in. Client’s jobs need attention to be successful, so the traffic manager-function needs to be a comprehensive process.
• Bookkeeping needs to take place closer to the surface, which sucks up bandwidth. The agency needs to have apparatus to pull daily time against budget, which requires employees to stay tuned in to the budget. Lack of attention leads to mistakes. Mistakes lead to unbudgeted time expenditures. Soon the short job is long, etc…The agency must be highly adept at nipping scope creep in the bud before it gets creepy.
• Hourly consulting is less scalable for building a business model you can sell. If cashing out your SEM agency is the end-game, hourly consulting businesses often don’t command the same valuation as those that proffer “products” or residual cash flow.
• Easy to take your eye off the ball. Mixing short-term, hourly, flat rat and residual based “products,” needs to be intentional and always scrutinized.
• Creates additional layer of administrative duties, all parties must be incredibly precise.
• Some clients want longer term relationships. It’s important to have the “wisdom to know the difference,” early in the sales cycle and be willing to commit to the right client.
• Did I say timecards can suck?
• If an agency gets paid to audit-and-recommend, as opposed to spending unpaid time responding to RFPs, the front end advice sure as hell better be great.

Most advertising agencies depend on some kind of hourly/flat rate mix. Whereas it’s always been our objective to knock down longer term deals, we’ve had success by focusing our attention on short term evaluator service, as a prelude to taking on longer term assignment. While there are challenges, we believe that the advantages far outweigh the natural obstacles.

While aimClear has a healthy mix of short & long term lengths, the longer relationships now come by way mutual vetting and there’s way less wasted and unpaid time up-front.

We’ve observed interesting advantages to diving in whole-heartedly on a short term retainer agency-intake model which, though counterintuitive on the face, transcends recessionary triage measures.

Moderator Greg Jarboe (President & Co-founder, SEO-PR) opened the session by asking the audience “Who on our panel is the Lion, the Tiger or the Bear…oh my?”  All Wizard of Oz references aside, there appears to be no clearly defined Yellow brick road to success in these tight economic times.

It would take a wizard to clearly see the future and direction of the current marketing but to the panel’s credit they gave it their best shot. The panel consisted of: Craig Macdonald VP of Marketing & Product Development, Covario Inc. Ellen Watson Relationship Marketing Manager for Child Care brands, Kimberly – Clark Corp. and Henry Hall, Head of Search Media Contacts NY.

All of the speakers took the opportunity to pull aside the curtain and offer some excellent insight into the strategies and business relationships necessary between search client and search marketing agencies and firms to tackle the tough economic times ahead. Magic Kingdom or bust!

The current cyclonic economic maelstrom has swept through and gutted most corporate marketing and advertising budgets in 2008 and all indicators point towards further cuts through 2009. It is more important than ever to speak to concerted, targeted, streamlined, efficient strategies that are trackable through conversion. Clients will weigh ROI against conversion more than ever before.

A Brain: Craig Macdonald spoke about “The new reality”. Economic trends are starting to affect even paid search advertising. Unthought-of even a few months ago, paid search showed a mere 5-10% growth in the last quarter (3rd 2008) compared to 35% growth in the previous period.

The market for paid search has obviously softened and Mr. Macdonald predicts significant cuts in paid search advertising during the first half of 2009. The bottom line is that companies need to get better at search marketing.

Pure branding campaigns are no longer an efficient use of marketing dollars. Companies are looking for targeted conversion driven strategies to drive direct consumer activity. Along with integrated cross marketing platforms and improved search techniques they will look to invest in improved landing page technology to better capture and entice conversion on their web properties. They will require consistent and comprehensive testing of all paid and organic search campaigns as proof to justify their ROI.

A Heart: Ellen Watson asked the question, “Where is the client in the mix?” Search agencies and firms need to work closely with clients in developing overall goals and expectations of any campaign. Clear, concise communication is paramount to success. Listen and use straight talk. Many clients want the results and not the details, some want it all.

The depth and comfort/trust established early on in the relationship between the agency and client will go a long way in determining the success and dynamics of the marketing plan going forward. As Ms. Watson put it, “We (executives) don’t need to necessarily know which bid management company we are utilizing, we just need to trust that it is the proper one for us and the campaign.” That comes from strong and trusted relationships established with reputable marketing firms.

Ms. Watson is a strong believer in triangulating your search strategies. The balance between budget, volume/impressions and traffic quality are key factors in spending. Anywhere you can acquire consumer contact is a conversion but you need to track and validate the quality of that contact to justify the ROI of any campaign. Search agencies and analytics teams need to work closely together to ensure the quality of your conversion traffic.

Courage: Henry Hall spoke about having the courage to streamline all of your processes to create greater efficiencies. Build a team and program focused on simplification and transparency of all processes, one centralized point of data collection and greater efficiencies and standardization.  Be nimble enough to act quickly and have the ability and options to tweak all campaigns to meet local market interests and trends. “We need to get away from the last click mentality.”

Not only for search but all other media.” Otherwise search will face the same budget cuts as all other media. “Search is too important to risk being lucky.” The courage to implement new team strategies with clearly defined and measurable goals is essential to survival and success. According to Mr. Hall, “Most companies have grossly underinvested in web analytics and they are essentially flying blind.”

The entire panel tackled the issue of the role technology will play in the process. The performance tracking of paid search, improved automation in auditing of natural search and the multi-variate testing capabilities of comprehensive search management were all key points discussed. According to one panelist, “Rank is becoming a less reliable indicator of the natural search process” and another noted, “Many organizations and businesses are looking at “true post click” as the arbiter of what is really happening”.

In the end the key is to build a strong team, set clear concise agreed upon goals, with measurable metrics, true analytics to support and define ROI, nimble strategies that allow for market fluctuations, patience and trust between the Client and the Search marketers. The Wicked Witch of Recession is upon us. But with a good brain, a little heart and a lot of courage we should be able to get back to the emerald city just fine.

Success on this front can truly be the difference between financial success and failure for an agency. Without adherence to a client scope document, expenditures of time and energy might not be monetized. Work FLIES in the door here from ALL directions and that process must be managed.

Clients with annual contracts need something quickly, content vendors, we share common clients with, call on the client’s behalf, we take note of a previously undefined task that’s critical, multiple representatives from the same client call and ask for contradictory things. Inflow of work in an atmosphere of strategic vendor clients is a matrix.

In Or Out Of Scope?
We ask that question all day every day. When we email each other about jobs we take written note whether the task we’re discussing is in or out of scope. Paying attention to scope has become as much of the holistic culture at aimClear as air hockey and espresso. To understand how work comes in the shop, whether the job needs executive scrutiny for a “bid,” or whether to simply proceed has now become part of the healthy corporate lifestyle.

The blog technician needs to be aware that, when a designer calls and asks for the database to be moved, this 15 minute job may or may not be within in that client’s scope. When a vendor calls on our PPC Manager on a client’s behalf and asks for 2 new Minneapolis geo-targeted PPC AdGroups for a holiday special, we must determine if the setup and ongoing management are within scope.

For us, this starts with a carefully conceived and accessible client goals and scope document which has been discussed with each employee who is likely to encounter service requests. Below is an example. Please take note of how this sample goals & scope document states our expectations of the client.
_______________________________________________________

GOALS
Maximize the website’s chances to rank higher in organic listings on search engine results pages (SERP) for relevant keywords by optimizing content and technical structure for the Website, link building, as measured by traffic from organic search.

A portfolio of ___ inbound links from blogs of various authority levels including major online trade publications. Teach client to Clickbait and linkbait prominent authors, blogs, and online publications, participate and become respected in related communities.

A portfolio of ___ inbound links from Web 1.0 sites, authority sites, including at least — .edu domain links.

____ unique visitors a month with less than a __% bounce rate, higher spikes, posts that have the capability to go viral. (Read: Drive 28,402 Extra Visitors by Blogging for 48 Minutes.)

Less than 30% of traffic from Google

___ new RSS feed subscribers, — (changed after Andy’s comment) % transition rate of present email subscribers to feed subscribers by FeedBlitz

30% transition rate of current email subscribers to blog community participation.

Defend direct brand searches for customer, authors, and organic local category searches

Implement ongoing monitoring of blog and agency reputations sent directly to client.

Increase the public’s perceptions of the customer, blog, and authors’ status as “experts” in categories’.

___ sale conversions daily with a gross revenue of $____

These goals require a considerable commitment from client. They are attainable and could be eclipsed. This profile is that of an “up and coming” blog, poised to do great things.

Remarkable Content: We believe that creating remarkable and recurrent content is the best pathway to procuring inbound links. Client agrees to strive towards the creation of remarkable content, with our support.

SCOPE OF SERVICES
Advise content creation and information design (homepage and minimum of 17 new optimized pages) driven by keyword search frequency. Research customers’ areas of interest identified as susceptible to Client’s sales pitch.

Analyze competitiveness of keyword spaces on SERPs, report to client.

Buzz research to reveal buzz categories in social communities, blogs, video, news, audio (podcasts)

Keyword research to reveal categories and subcategories of search engine queries

Blog research to reveal relevant authority blogs and their linking constellation

Written recommendations regarding information design, content areas, and technical matters related to site deployment and content management.

Ongoing support and input as recommendations are implemented by CLIENT’S content and development teams.

Monthly in-person meetings

Minimum of 6 hours per month average over 12 months, aimClear personnel assigned to Client tasks.

Provide 6 Word-documents of written content for site, specified technical attributes (page title, Meta description, image tags, etc…). Advise the deployment of these new optimized pages*.

Month Two-Twelve: Provide 1 additional page/interest-area as needed. Supervise CLIENT’S creation of these new optimized pages.

Advise the creation of back end article publishing system optimized for social media*. Utilize free open source blog software (WordPress) lightly customized (graphically) and set up utilize social book marking tools.

Determine and report quality and quantity of inbound links. (Note: link-building is not part of scope at this time)

Client will update homepage content block once per week, 50-70 words with heading, advised by research.*

Consult regarding cross-linking from primary content management system or other website to/from WordPress

Recommend areas of static content and site navigation information design for the blog.

Call for and teach you how to optimize content created by your team. Our expectations of your output are that you will publish 1 (although a minimum of 3 properly tagged posts are recommended), 200-800 words each week

Twelve (1) live hour blog coaching sessions by WebEx (Once Monthly)

WORDPRESS & ANALYTICS
WordPress “themes” are 2 parts: (1) the design customization (2) plug in configuration along with associated code modifications. Our Whitespace Theme can be customized graphically, has pre-configured SEO plugins and a number optimized attributes that are not available in free WordPress installations.

ClickTracks page tagging Analytics and Google analytics. These analytic packages will associate traffic with organic search to measure success. Google Analytics requires JavaScript page tagging. WordPress utilizes a plugin for Google Analytics. It often makes sense to aggregate the blog, it’s domain, and other client web assets in a single analytic environment.

Client desires to customize WordPress template graphic design in house. At your request aimClear will design the theme and manage the process at additional charge. The typical cost is $___- $___. *

Web Hosting: Client is responsible for any costs associated with web or database hosting. aimClear must approve of hosting *

Evaluate present content management application, hosting environment, and business model. Make Recommendations

Install and Optimize WordPress content Management theme (on subdomain or in directory). WordPress is open source software which can be customized (graphically) and configured to utilize custom SEO attributes at the site and post level, social book-marking tools, RSS feeds and blogging.

Please note that there are hosting considerations which need to be discussed which could result in additional monthly hosting fees.

Tracked RSS feeds for the Website

Consult regarding linking from primary content management system or other website to/from WordPress
(Month 1)
Buzz research to reveal buzz categories in social communities, blogs, video, news, audio (podcasts)

Blog research to reveal relevant authority blogs and their linking constellation (Month 2).

Recommend areas of static content and site navigation information design for the blog.

*Third Party Expenses: Any expenditure over and above our fees must be explicitly authorized in writing by the Client.

Though seldom discussed, failing to engage clients in preemptive dialog has the potential to cause accounting, intellectual property ownership, and even legal nightmares. If not proactively addressed and contractually codified, the account-ownership issue can come back to bite you. We have 5 year old PPC accounts and never lost a major paid marketing client. Still we know that “best practice” dictates accommodating the eventuality into our business model as we continue to add clients.

Whose Credit Card Do You Give?
A major motivation for direct client billing is to insulate the small PPC manager from financial liability, which could result should any client not pay their PPC bill. However, this presents problems on other levels as an agency scales from one to many PPC accounts nested in complex portfolios.

Issue #1: Accounting
First, advertising platforms charge credit cards on different models, usually either pre or post-pay. As a result someone is always fronting money or caching dollars for post-pay. Commissioned SEM managers report, if not invoice, clients based on monthly traffic and associated spending. Since credit card transaction dates and amounts have little or nothing to do with traffic reports, there need to be TWO levels of accounting: monthly traffic charge reports correlated with credit card transaction detail reconciliation.

Path of Least Resistance
This is reasonably easy to handle for one or two accounts and associated single-credit card charges. However a growing PPC agency might work with PPC portfolios marketing dozens of accounts across multiple platforms for the same client. Whether we use clients’ credit card or ours, the ensuing accounting procedures involve hundreds of monthly credit card transactions cross-referenced to traffic charges. Use API tools, run it by hand, or develop some hybrid import/export routine-the numbers have to be crunched and that takes work. With platforms changing all the time, steady standard operating procedure can be hard to come by.

In deciding whether to use our credit card or theirs, the first real question is “do we want to be in the business of billing the client for monthly PPC traffic charges and then reconciling THEIR credit card statements our OURS?” For us, the answer was slow in coming. We use our credit cards and here’s why:

The dual layers of accounting can be an adventure, with no two months ever the same. Also, sometimes search engines make mistakes that need to be handled. Credits for click fraud make things more messy. Even when everything is right things are complicated. We prefer to deal with associated hassles in the privacy of our office as apply to OUR CC bills and NOT in the client’s face. We don’t want our valued clients stressed because their credit card charges make no sense compared to monthly traffic reports-expecting US to figure it out under pressure.

We send clients invoices based on traffic reports and handle everything in between… and that’s that. If an issue arises in reconciliation, all our clients see is an adjustment on next month’s invoice with an explanation of the debit or credit. This method is much easier for us and more professional in our opinion. Ultimately there are no more or less issues to deal with; however our relationship with the client surrounding cash is simple and clean.

Risk & Reward
Of course WE’RE the party fronting the cash and managing the stashed dollars for post-pay. That sort of cash flow is a quite a double edge sword and takes lots of good credit. Though not our primary intent, we reap the cash flow and interest benefits from clients we have pre-pay us-since Google is willing to post-bill.

We’re Not Greedy
Other clients we have deeper relationships with are post-invoiced very 2 weeks from traffic reports. We bill them for the previous half month’s traffic + commission and it all comes out even in the wash. There is no particular financial advantage for us, though mining hundreds of thousands of American Express points and frequent flyer miles are pretty perks. Still, 80K+ of monthly Amex bills would alarm even the most rugged small entrepreneur. There’s no margin of error or room for mistakes. Trust me I gnash my teeth while taking free flights.

Issue #2: Account Ownership
Who owns PPC accounts anyway when we set them up for clients? Who owns the keyword research and account history? What happens if the client moves on and there are serious Q-score ramifications if they were to start over? Given how totally front loaded PPC creative is, from the time investment perspective, we need to make the commission from the account long enough to make it worthwhile. To what extent is it fair to use account ownership as leverage to keep clients longer by incenting them to stay?

We think it’s different when a new client brings us a mature account with years of history and great Q-score. I know this: if any of our long term clients need services past our growth-capabilities we would likely turn over the accounts and wish them the best. However, we can’t be stupid as we add clients.

Many good businesses foster healthy environments where clients grow to depend on services and there are barriers to leaving. That said, for some search agencies, this approach is too carnivorous. Regardless of your agency’s philosophy, as accounts and cash flow multiply, these matters must be spelled out as fundamental shop policies and standard contract language so there are no misunderstandings.

That Nasty Credit Card Thing Again
We’ve been been advised that it could be more difficult to assert ownership (regardless of what the contract says) of any aspect of client PPC account where we’ve used the client’s credit card and contact information. Reciprocally, we’re not willing to take on cash flow risks while making it easier for clients to leave. Back in the day when the traditional media buyer purchased network television for a client, he/she did not turn over a list of industry buying contacts or internal agency accounting records when clients left!

Here’s Our Current Model:
1: We nearly always use our credit cards. The simplicity of client relationships and extra control easily justify the practice. The perks are palpable. The gross revenue of the company is much higher. Please note that this practice does not really increase the value of the business much. The profit is the same at the end of the day. However billing through a large media buy can provide cash flow which can be leveraged in useful ways.

2: New clients pre-pay their approximate PPC spend every 2 weeks. We report and reconcile monthly, based on traffic charges. The bank account we use is set up the same way as an attorney’s escrow account. We’re willing to accept credit cards to pay US even though there is a 2%+ hit. As trust in the relationship grows, we become willing to post-bill clients and absorb more risk (next paragraph 3) but only on a cash basis, not using their credit cards to pay us.

3: Long term clients are post-billed every 2 weeks for their PPC spend, net 10 days. We trust them. Billing is based on traffic. We correlate our monthly credit card charges to client accounts and reconcile internally.

Setting Up Accounts
4: When we do the research and set things up, clients are provided keywords and ongoing history via OUR reporting tools, not Google, Yahoo, Facebook, StumbleUpon, IYPs, or MSN. They never see the accounts, don’t know the passwords, and we own the accounts. If they leave, they have the data but must start over with their Q-score.

Point blank, it’s a big upfront investment for us to research and set all of this up for new accounts. We don’t want it to be stupid-easy to leave. We are amenable to negotiating clients leaving with Q-score phat accounts and logins after a certain period of time or contingent on other conditions. We care about our reputation and would never hold a client we have not been performing for hostage.

5: Clients that bring us existing accounts retain access to those accounts and have ongoing access to them. They also receive reports through our API tools. If they leave, they own the accounts and the Q-score. The reason that’s a good deal for us is that typically these mature portfolios require less work to set up and deal with. If we expand the portfolio in major ways then we discuss the expanded scope and negotiate terms as we go.

6: Under special circumstances we will use a client’s credit card, provided they are willing to reconcile their credit card statements to our traffic reports. We don’t want clients faxing us their credit card statements to figure out. That’s what their accountants are for. We’re willing to handle all the accounting, but only internally when we lay out the cash.

In Conclusion
Though there is not much dialog out there regarding the matters raised herein, we hope this sparks some dialog. The cash flow, credit, control, accounting, philosophy, and ownership issues surrounding PPC management are very personal decisions which can affect the very solvency of an SEM agency. It’s not one-size-fits-all and we’re interested in how other solo practitioners and agencies deal. Thanks for visiting.

We’ve made some mistakes and done other things pretty well right. The fact that Rand Fishkin has been willing to unselfishly share what he’s learned about SEM agency structures certainly helped us shape our business model. Andy Beal has offered extremely practical information. In retrospect, Danny Sullivan & Chris Sherman’s SEM business track @ Search Engine Strategies 2006 mattered a lot.

Technology investments, hiring decisions, analytics philosophy, PPC management, accounting, training, marketing, transparency, social media strategies, networking, community relations, and many other issues require attention, vision and a cast-iron stomach.

Our next post marks the inaugural topic to lead off a series of articles we’re calling “SEM Agency Fundamentals.” In it we’ll discuss the highly personal tradeoffs associated with PPC account control and whether to use client credit cards or the agency’s. We hope you enjoy the series and look forward to your comments, input, perspective, and experience.

There are two common reasons for a practicing SEM to get OUT of search immediately:  1) You’re a semi-effective Web 1.0 “provider” who is not studying, and have no stomach left for screaming corners where one of the the only givens is unpredictability. Stay in search and you’ll hurt your company or clients. 2) It’s time to cash out of your agency or business while search is relatively easy to understand.

Saga of the Trusted Web 1.0 Provider
Recently we participated in a discussion regarding ridiculous search marketing scam artist jerks that prey on unwitting businesses. There is an equally dangerous, albeit more insidious, class of SEM “providers” who seem legitimate but have not kept up with critical developments in our industry. There are at least two in our city. These Web1.0 clowns, circa 2004, used to be capable of fooling all but the savviest CEO or client. Typically they are one-person shops, IT lifers, or clueless advertising agencies. However, corporate SEM consumers are wising up quickly as 2008 approaches.

aimClear is often contacted by prospective clients who are disillusioned or downright pissed off at their current search marketing agency or solo SEM practitioner. The latters’ websites were pretty but since they did not assertively adapt to the challenges of personalized and universal search, are suddenly minimized or have disappeared from the organic SERPs over the last 6 months.

Read it and Weep
The sad stories are freakishly similar. Typically PPC budgets are ballooning way out of control to take up the slack caused by missing organic prominence. Plummeting ROI represents the allegorical “all eggs in the Google basket on change-day” doomsday scenario. The eggs are now splattered all over the floor and on the advertiser’s face. There is NO excuse. Search marketers were warned.

Catching Up with Failure
Because of the importance Google places on a site’s longevity, it’s taken a while for older Web1.0 sites to be outed. Even these sites become unfortunate victims. At the mercy of marketers too myopic to evolve, they have no RSS feeds, no social media strategy, no organic conversion tracking, they stuff keywords, participate in reciprocal link programs, have little recurrent content, don’t understand millennial PR, think meta keywords are important, haven’t a clue about the challenges of tracking offline conversion, refuse to change from expensive custom-CMS applications not plugged into the blog linking grid, use ancient analytics, suck up to territorial IT fiefdoms, and (like deer in digital headlights) wonder what the hell is going on as panic sets in.

Obsolete search marketers still counsel the uninformed, usually long term, clients into 2004 KPIs: traffic count metrics and Web Position type SERP-scraping organic prominence measuring reports. “Rankings on the brain” is a terminal affliction these days and we meet the victims in cold calls to our agency.

No Excuse
The search marketers handling these accounts should be embarrassed and will likely be squeezed out of existence along with the weak-ass sites they handle. There is no excuse. We were all warned. Search marketers who were asleep at the switch are obsolete already.

A Smart Man Who Understood the Universal & Personalized Game Changer
My brilliant friend sold his boutique e-commerce category site early this year for a prodigal sum. He and the team deserved it. They were 3X INC 500 award recipients, late 90’s pioneers in CPM banner buys on Alta Vista, they built early Overture auto-scrape bidding tools, were early adopters of shopping feeds, became recognized technical innovators, and used homemade analytics to track organic prominence and ROI by late 1999. The CTO was a true innovator. The company was sparkling. With custom manufacturing facilities in China, a staff of 50+, an incredible CMS integrated with inventory and CRM, 7 full time engineers, rapidly expanding sales, they also had a killer brand and URL.

Stay the Course
Of course, there had been many opportunities to sell the business over the years but my friend, the CEO, always resisted. He stayed true to his concept of growing his hot little e-tail category site to one of the best businesses of its kind in the world. Over the years, one by one, they navigated major Internet environment shifts, including Google’s astronomical rise to power.

After months upon months of informal conversations with potential business-buyers, they sold, packed up the tent, cashed out, and walked away mid-flight. They were not specifically planning on selling. Granted, he also had a feeling the market was at a peak and would be seeing a slowdown/recession in the next year or two, but key was a great offer that came along at a pivotal time in the Internet’s history.

Impending Changes
I asked my friend why he would decide now to part ways with a business he lovingly shepherded to fruition from a hole in the wall one-person strip mall shop. His explanation was razor sharp and scared the living hell out me. “Universal and personalized search were about to remove the ability to absolutely track organic prominence and succeed in the organic SERPs, he explained.” He did not want to face the challenges of doing business on the Internet absent the ability to track absolutely…time to cash out and let the next generation of search marketing scientists deal with this nasty paradigm shift, which he felt difficult to surmount. He was right.

“Universal and personalized search were about to remove the ability to absolutely track organic prominence and succeed in the organic SERPs”, he explained. He did not want to face the challenges of doing business on the Internet absent the ability to track absolutely.

Get Off the Train
In 2003 pundits preached the impending RSS explosion. The forums at Search Engine Watch were buzzing with adapt-soon-of-die banter, ablaze with prognostication suggesting that every major media outlet, publisher, and even common websites would soon market by new-fangled feeds. Last year at SES Chicago we were warned about personalized and universal search. Last spring, verticals like news, video, and maps began squeezing everyone even further out of the organic SERPs.

These are but a few of the astronomical changes that often take place in search. The meaning for my solo SEM practice (then) and our search marketing agency (now) was and is crystal clear. Search marketers unwilling to learn and adapt will likely not survive. Umm, they’re not surviving-they suck. They’re killing their companies or clients.

Be a Hard Core SEM
Search marketers be strong! Study hard. Ride the rollercoaster with eyes wide OPEN. Change with the times. Navigate the curves. Go to your decision makers and clients to explain the ramifications of what’s now and what’s next if you want a seat at the table. Help your people understand the significance and risk of nearly overnight obsolescence. Study your ass off and be ready to quickly adapt. Do not get comfortable. Do NOT get comfortable. Comfortable search marketers puke all over everyone else on the rollercoaster. We know this because your clients are calling us.