Maximum Profitability in Online Marketing: How to Optimize Google Adwords Budget Allocation
The problem: Lacking insights into Google Adwords contribution margins
The marketing manager of shoes-online.com* uses Google Adwords as his most important online marketing channel. To allocate his Adwords budget to his keyword portfolio, he usually takes a look at his keywords’ revenues: high revenues = high keyword budget. But this assumes that not all keywords with high revenues have high contribution margins as well? Maybe some well-selling keywords lead to extra high return rates or record disproportionate costs of sales? Where can further profit potentials be exploited and where can uneconomical investments be avoided?
Admittedly, the shoes-online marketing manager knows that budget allocation based on contribution margins per keyword would be the only reasonable way, but unfortunately, this data is not tracked in Google Analytics.
The target: Determine each keyword’s optimal budget – for maximum profitability! Using minubo, this vision becomes reality.
Report: figure out contribution margins
The marketing manager wants to create an individual Adwords report and therefore accesses his integrated raw data via the minubo Excel frontend. This frontend offers more than 300 predefined eCommerce metrics that enable the manager to compose the requested report within two minutes –updating automatically from now on and thus being available at any time. To match his Contribution margin 1 generated via Google Adwords to every keyword as exactly as possible, the marketing manager decides to use the “Bathtub” attribution model.
Using the “Bathtub” model to attribute the Contribution margin 1 to each keyword, the Adwords report looks as follows:
Analyze and take action: Maximum profitability vs. increased outreach
In the Contribution margin 2 column, red, green and yellow arrows indicate that too much budget is invested in several keywords, while at the same time, other keywords with positive contribution margins might be hiding lots of unexploited revenue potential.
Focusing on the keyword “Nike shoe 2”, the marketing manager discovers that he currently invests 800€ in its advertisement, but only recoups 700€ (after reversals, returns and costs of sales). The result: a negative margin. Now, trying to find the keyword’s optimal budget, a concrete target has to be defined – being subject to two principles:
Already recording high market shares in the sport shoes segment, the marketing manager of shoes-online.com decides to optimize his budget allocation following the principle of maximum profits and thus slashes his budget on “Nike shoe 2”. To visualize his action, he makes use of the theory of marginal benefit, applied to the marketing context. Graphically, the initial situation, the two possibilities of optimizing budgets and the chosen process of maximum profits look like this:
To further optimize his keyword portfolio, the marketing manager continues to utilize this form of graphical visualization. He deals with most of the other product categories in the same way as the “sport shoes” segment – following the principle of maximum profits by gradually raising the budget assigned to every keyword to determine its maximum point of profit generation.
The only segment for which the manager chooses another approach is the segment “winter shoes”: As winter shoes are seasonal, the manager decides to drop their prices for a short period of time to acquire new customers from the large market of current winter shoe purchasers: high Google presence through high financial investments – but without recording a negative contribution margin.
The result: higher profits, more new customers
In just four weeks, the marketing manager of shoes-online.com has already defined the optimal allocation of his Adwords budgets by using minubo. The Adwords report updates automatically on a daily basis, so that the manager can always readjust the allocation of his budgets easily.