Putting Profitability First in Digital Programs

I just got back from my annual trip to the Google Partners’ Summit. It was part of Google’s Live Marketing event in San Jose, and there was a palpable difference from previous years. There were the usual themes of AI and Machine Learning, and a lot of attention on the newly announced Google Marketing Platform which looks very exciting. But for me, the standout was an emphasis on putting profitability first in digital programs, especially in PPC.

Hallelujah. Finally.

What you can do if you know customer profitability

I listened to one case study involving a national insurance agency. They segmented their existing clients into, I believe, twenty different segments. They calculated the lifetime value (LTV) of each and targeted their marketing efforts on maximizing the profits from the top segments. It was transformational.

Just think what that approach could do for your business, or how awesome it would be to market in that kind of environment. That’s getting close to Marketing Nirvana.

When I started with Point It in 2009, only one of our clients knew what the LTV and profitability of its customers were. Yes, just one.

I was stunned because knowing the profitability of one’s customers gives a distinct advantage over your competition. Our client knew exactly what the profit would be from their PPC program and could manage it very strategically. It made me wonder: why wouldn’t every company choose to do that?

I thought maybe what was lacking was client education, and I fully expected more clients to get on board with customer profitability as we continued to bring it up. Strangely, though, that never happened –  and nine years later, only a handful of clients are interested in monitoring their customers’ LTV.

But let me tell you, the times are a-changing.

Why PPC profitability is about to go mainstream

In June, we held an event with Google at their Fremont (Seattle) Campus and it was specifically about putting the profit in PPC. Interest in the event was very high, and the level of conversations from the audience indicated to me a growing interest in the subject matter.

Fast forward to the event in San Jose, and many, many people were talking about it.

Let’s talk about what’s changed and why you need to get on board with it – pronto.

I believe the driving force behind the new focus on profitability is the availability of relevant data, coupled with much-improved analytics tools.

Marketers have always been aware of the impact that data and analytics can have on business. But it takes more than awareness to make positive and profitable decisions. With the right data and analytics, marketers are now able to provide compelling arguments and recommendations to business stakeholders – especially those in the C-suite – to adopt a focus on customer profitability.

How to get the focus on profitable PPC

If I were a digital marketing manager who was looking to redirect my stakeholders’ focus, I’d walk into the CFO’s office and tell them very plainly that it’s finally possible to see the real return on the company’s PPC investment. Trust me, that’s a big deal. CFOs have been asking to see that return ever since Adwords started; many see PPC as nothing more than a massive expense (because not everyone loves PPC like we all do at Point It).

Continuing with my scenario: once the CFO was on board, they would magically begin opening doors across the organization to get things going and make sure they saw this profitability. Sales, Marketing, IT, and other teams would quickly start collaborating once the CFO got behind this approach.

Suddenly siloed data begins to get merged – although it’s likely that not every piece of data is going to be available. If that is the case, it’s time to bring out every CFO’s favorite calculator, the SWAG (just kidding), and use intelligent estimates to come up with LTVs and figure out the profitability of PPC.

Once you start measuring and reporting on this, more and more people will get involved, and this will drive towards getting more and more accurate data over time.

How profitability focus is transformational

At Point It, we’ve spent a lot of time discussing profitability with our team. Granted that for an agency, it’s a lot simpler than it is for many of our clients. For us, it’s just Management Fees, less the Cost of Goods (COGS). But it didn’t take our staff long to figure out the profitability of our client relationships, then to set about improving on that to help our company.

I often hear our team having conversations about improving gross margins – something which, a couple of years ago, I’d never have imagined would happen.

Then things got really exciting when I heard some of the staff talking about how to improve their client’s profitability. They wanted to take on the challenge of shifting clients away from a leads- and sales-based focus to a focus on the profitability of those leads or sales.

And that’s brought us to our single-minded approach: helping clients grow profits. That is the number one conversation we have with our clients today.

It’s sharing time

We found it to be extremely beneficial to share cost information with our staff. So why aren’t more companies doing that? I believe there are at least two reasons.

  • The data is not readily available for each product or segment of a company.
  • There’s a reluctance to share that information with employees. Based on the results we’ve seen, that’s just crazy.

We‘ve started asking clients to share their profit numbers, and response are usually as follows:

  • “That’s confidential.”
  • “It’s way too hard to calculate.”
  • “We’re just given a leads target by management, and never given profit numbers”

Let’s address these points one by one:

  • Confidentiality – would you rather keep that close to your chest, or share it with a trusted partner, who’s already under NDA, and help them help you increase your profits?
  • Difficult to calculate – with the systems in place for tracking leads, sales, product costs, combined with the data analysis mindset of many companies, this answer is just unacceptable. It’s more than worth the effort to calculate. In the meantime, work with an estimate.
  • Lead targets – as a digital marketing manager, or even CMO, it’s time to demand the profit numbers be shared with you in order to make better business decisions. It’s been shown time after time that the people on the front lines are often the best-equipped to provide great suggestions and insights leading to improved profitability. Why wouldn’t your CFO or upper management want to share this data, if it could lead to better business decisions? Start having these conversations with them today.

I came back from the Google event truly jazzed. It’s time for marketing – not just digital marketing – to INSIST on companies having a customer-level profitability focus. When that happens, look out. Marketing will never be the same.

Who knows, maybe the CFO will become your best friend?

Well, maybe that’s pushing it.

What's Next?

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Frank Coyle About the author
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