September 17, 2014

More Than Half of SMB Owners Quit Paid Ads Within 6 Months

[Note: I wrongly quoted the study this morning when I said that nearly 90 percent of SMB owners quit their paid search campaign within 6 months. The true number is closer to 60 percent.The post has been edited to reflect the true statistics. I very much apologize for the error.]

Well, this is sad. A new study from Borrell Associates found that nearly 60 percent of small business owners quit their local paid search campaigns within 6 months of starting, saying they are unhappy with the results and can no longer justify the costs.

Ouch. What’s going on?

I think there are a couple of reasons for the sour stats.

First, SMB owners are unsure of how to run a paid search campaign so they purchase their ads from overaggressive resellers. These resellers sell them on “guaranteed click” programs, making big promises about what they can offer, and then fail. The SMB owners, no longer able to justify the investment and high click costs, are forced to back away and abandon their paid advertising campaigns almost immediately after they start.

Covering the story, the Wall Street Journal explains:

Borrell CEO Gordon Borrell also blames the affiliates that are marking up the search ad prices they charge local advertisers to increase their commissions. Local advertisers aren’t generating enough leads to justify what they are spending, causing them to drop out. Furthermore, the resellers are charging local advertisers based on how many thousands of clicks they can drive to their Web sites. But those clicks are often worthless if they aren’t from the right kinds of customers.

The last part is really the heart of the issue.

Small business owners are being sold on a program that is virtually worthless because it is focused on the number of clicks, and not attracting the “right” clicks. Uninformed SMB owners shell out the money for these “guaranteed” programs and then don’t realize their ads are being run on second or third-tier ad networks where their customers aren’t naturally hanging out. After a few months go by, the SMB owner either fails to get the number of clicks promised, or if they do get the clicks, they find the traffic they received is unqualified because the ads weren’t targeted properly. And then they give up.

The other reason small business owners quit paid search so quickly has to do with education.

Running a paid search campaign is a big investment. There’s new keyword research to do, you have to craft landing pages, and before all that, you need a Web site! Several of the study respondents admitted they didn’t even have a Web site they were tying their campaigns to. Ouch.

However, you can be successful in your paid local search efforts, especially with the number of free tools available to help them started.

If you’re going to run a local search campaign, I’d recommend the following:

  • Make sure you have a Web site and landing pages set up that you want to direct people to. The more targeted the page is to your ad, the higher conversation rate you’ll see and the better your Quality Score will be. The higher your Quality Score the less you’ll pay per click.
  • Avoid click guarantee programs.
  • Educate yourself on where your ads will be running and where they’ll be showing up. Don’t just assume they’re being placed in the major engines.
  • Use tools like Google’s keyword tool and the AdWords Traffic Estimator to help pick your keywords and plan your ad budget.
  • Use Google Analytics (another free tool) to track users on your site. You should be using this whether you’re running a paid search campaign or not.
  • Spend time crafting your ads so that they’re valuable to a searcher. Use Google Analytics to test which ads are most effective. The better your ads perform, the higher your Quality Score, and the less you’ll be paying for clicks. And that’s money you get to keep for your business.

Local search can be intimidating for a lot of small business owners who don’t have the time and resources to invest in it. However, there are real opportunities there for small businesses in paid search if you take the time to learn what works.

Is your SMB using paid ads to attract customers?

28 Comments ▼

Lisa Barone


Lisa Barone Lisa Barone is Vice President of Strategy at Overit, an Albany Web design and development firm where she serves on the senior staff overseeing the company’s marketing consulting, social media, and content divisions.

28 Reactions

  1. Lisa,

    Very insightful and thoughtful post. I will test out Google’s AdWords in the near future and on June 26 I will attend a breakfast meeting on PPC at Guava, a digital marketing agency, in Gothenburg, Sweden.

  2. The paid ads shouldn’t be used only for immediate ROI. I think that’s another reason they are dropped.
    It’s important to be visible and to build recognition too.

  3. Another excellent post Lisa. I think education like this will go a long way to improve the statistics you listed above. I would also recommend adding “review your goals” to the list. I can’t count the number of times I have talked to people who have a goal of driving more phone calls but neglect to put a phone number on their website. It sounds like a silly mistake but it happens and it can be costly when it does.

  4. I think that sometimes it’s not worth it for small businesses to invest in PPC. It is a huge investment and although it brings instant traffic, there needs to be sufficient data to produce results. A company with a $1000 per month budget is better off spending that in one one week, as opposed to spending $30 per day for a whole month and getting nowhere.

    With a large budget it’s easy to identify problems and improve the account. With a small budget it could take up to a year before you collect enough data.

  5. I’m sad to say that I’m guilty of being one of these stats. You’re right, ignorance plays a big part. I jumped in without knowing what I was doing. After a few months of being clueless, I just gave up. I know now that I should have done my research first and kept up with it longer. Well, live and learn I guess.

  6. Hey Lisa
    You paint the situation pretty clearly — SMBs are getting taken in many ways. But it is challenging for many of them to manage it themselves. It is a LOT of work running local search/paid search campaigns.

    To give an example, a client of mine has a contractor spending 10 hours a week to managing their efforts. Granted, they are a technology company so they’ve automated some of it and heavily use Google’s tools. In fact, they just found out there’s a keyword cap in Google of 68,187. None of us knew there was a cap.

  7. Lisa Barone’s interpretation of our research is a bit misleading. The headline is not correct at all. Our report is free and can be downloaded at http://www.borrellassociates.com. You don’t link to our site or quote the report.

    Only a minority of SEM resellers and vendors see 90% churn. In our report, “Economics of Search Engine Marketing”, in the paragraph before we mention 90%, we state, “…annual churn … for the major resellers is close to 60%.” The quote you took out of context was:

    “For the poorest performers, which include some of the smaller, less sophisticated resellers, we found:
    • 6-10% a month attrition on gross customer count
    • Up to 50% quit by 90 days
    • Up to 90% quit within 6 months”

    Please re-write and re-post this. We’re not as down on the industry as you make us sound and we would appreciate you authentically representing our research.

    Thank you.

    Martin Nyberg
    Associate V.P.
    Borrell Associates, Inc.
    253-678-1975

  8. Martin,

    I apologize for my misinterpration of the statistics. I will edit the post to reflect the number change. I misunderstood what I had read in the report.

    However, I do stand by the other two main points of the post. In my experiences talking to small business onwers, I do believe that many find themselves getting swept up in dangerous “guaranteed click programs”, which leave them very unsatisfied with their results. They hear “clicks’ and don’t fully understand that often what they’re getting is not at all targeted. And of course, some of the responsibility falls on small business owners themselves, who simply throw money at a campaign they don’t fully understand.

    Again, I apologize for misquoting the report. It was a misunderstanding and I appreciate you taking the time to comment.

  9. I just read the section of the Borrell report, and I must say the Borrell report itself leaves room for misinterpretation, because of how the report is written.

    Here is the portion of the report in question:

    “Churn is defined as the percentage of total advertisers that cancel contracts after a given period of time. Churn rates can be described in annual terms or in monthly terms.

    While none of the resellers wants to disclose specific churn rates, our interviews with them led to the conclusion that annual churn – or the percentage of total advertisers who go inactive or exit the program after 12 months – for the major resellers is close to 60%. For the poorest performers, which include some of the smaller, less sophisticated resellers, we found:
    • 6-10% a month attrition on gross customer count
    • Up to 50% quit by 90 days
    • Up to 90% quit within 6 months

    Based on the above paragraphs, it doesn’t seem like 60% is the right number either. It strikes me that the correct number would have to be a blended number, somewhere between 60% and 90%, if you were to take into account “major resellers” AND “smaller, less sophisticated resellers.” I am not sure what the blended number would be, because the report doesn’t make it clear. The different time frames used in these paragraphs further add to a reader’s sense of confusion (6 months and 12 months).

    I felt it was important to step in and clarify this, because the comment implies that a statistic from the report was taken out of context deliberately. However, that was not the case. I think a contributing cause of the misunderstanding is the report itself. The Borrell research report was just not written as clearly as it could be in the first place — on this particular point.

    But I commend Lisa for being open to conceding the point and changing the headline anyway.

    The entire Borrell report can be downloaded here for anyone who wishes to read it — it’s very enlightening:

    http://www.borrellassociates.com/report_details.aspx?prodID=186

    — Anita Campbell, Editor in Chief, Small Business Trends

  10. Paid ads should only be used by Business Owners that are willing to spend the required budget with capital, not through personal savings. You should never stop networking keep finding more ways to expand your Business advertising, and make it a daily routine for yourself then you’ll get to see your results within one month.
    This website will show you free ways of promoting your Business online
    http://www.powerhomebiz.com/guide/cases/ii-lexi.htm

  11. This report doesn’t surprise me at all. So many small business owners just don’t put the time or money (usually the money for professional management, not click spend because often times they waste a lot of money on “clicks”) into their PPC. Get a reputable manager unless you’re willing to put the effort into learning how to run your own PPC.

  12. Take a look at http://gesterling.wordpress.com/2009/06/12/the-local-search-conundrum/

    Businesses should be using all the free tools at their disposal before doing PPC: making sure listings are correct on Google and Yahoo and via data vendors that all the sites use: localeze, axciom, infoUSA.

    Make sure SMBs are monitoring Yelp, Citysearch or other vertical sites where their listings may appear. Claim listings. Use Getlisted.org.

    There are lots of things that can be done that will be as effective or more effective than PPC, although they require some time and attention.

  13. Pay per click advertising like directory listings all favor the larger businesses. The top listings are the ones people see and they cost the most. Small and medium size businesses can’t compete.

  14. Adwords resellers are using telephone marketing to convince trade type industries down here in Australia to “get to the first page” through PPC. We have experienced a huge increase CPC throughout many industries and unfortunately this will only increase. At this rate this ad space will only be affordable by the larger organizations in the future. How will anyone find Joe the plumber who is two blocks away?

  15. Thanks, Lisa. Great post.

    Where you land customers on your paid search program is also very important. I don’t have any statistics on this, but I’ll guess that most new users use their website as the place where they send their clicks. In many cases that is not the best web page for them to see. If the pay per click campaign is oriented toward a particular product, problem, or customer, it pays to have a special landing page created to address the particulars. If clickers land in a place that does not look like what they expected, they will “bounce” or go away quickly.

  16. Richard: That’s actually a really, really important point. In order to see the best return on your paid search campaign, you really should be directing people to landing pages that are targeted to the ad someone clicked on to find you. A lot of times people simply send people to their home page….and then searchers abandon the process because now they’re confused.

    You want the landing page attached to your PPC ad to deliver on the promise that made someone click through in the first place. Don’t send them to your home page.

    Great point. Thanks!

  17. More Than Half of Olympic Hopefuls Fail
    More Than Half of Aspiring Actors Fail
    More Than Half of SMB Owners Fail Within 3 Years
    More Than Half of People Who Try Sales Fail
    More Than Half of People Who Try Direct Mail Fail

    Like many things in life, paid search is inherently COMPETITIVE.

    It only works if a) it’s a good fit for your business, and b) you’re GOOD at it.

    Like anything in life, there is a learning curve. You either pay the price to learn and go up that curve or you pay someone who already knows it.

    I think expecting good results without paying the price for it is unrealistic.

    I’ve gotten paid search to work very profitably in my business. I can say the same about in person selling, public speaking, book publishing, TV publicity, direct mail, and teleseminars.

    But all of those outcomes came from a serious investment of time and/or money to learn how to be good or to recruit someone who is already good to do it for me.

    And even if you hire someone or some firm, you still need to know enough to figure out if you’re getting ripped off or not.

    Expecting anything less just isn’t realistic.

  18. I have now registered for a Google Adwords account and created my first ad for a consumable product that is distributed via a direct selling network. My potential customers will purchase the products on a monthly subscription basis or buy from a web shop now and then.

    I got a campaign offer with an offer code from Google in Sweden. I got SEK 600 after I had registered my account. They charged an one time activation fee. I decided to put a small amount as a monthly budget to test it out. We will see if I will continue with the ads for six months… ;)

    I had to think a bit before I picked the different search words. I have decided to have six different key word phrases to start with. I used Google’s key word tool and looked after common searches and then picked some that I thought could be related to the ad. It will be interested to see what will happen in the next few days. It is good that you quickly could change the settings, e.g., budget per month, where the ad should be show (location), amount of keywords, etc.

  19. I have known several small business owners that have tried the paid ad words and none of them have had any luck with them. They claimed they were not worth the money and they often times couldn’t find their ads when searching.

  20. I’m stunned by the number of small business owners who decide to try Adwords themselves, without any training or coaching whatsoever. They are guaranteed to fail.

    The good news is, if you have an idea of what you are doing, you can optimize their landing pages, run a quick test campaign and show them that PPC does indeed work. I’ve found that my best clients are those who have tried and failed, because they realize it does indeed take some technical skill.

  21. PPC is really difficult and small businesses can run into problems if not under the wing of a professional. It’s definitely a hands off system for most if it is to be effective.

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