Performance-based advertising will continue to see terrific growth over the next three years, but not necessarily in the traditional pay-per-click models that exist on the Internet today. Pay-per-call, pay-per-visit, pay-per-conversion, and other forms of performance marketing will continue to augment and eventually replace the traditional click-through transaction. Why? Because true performance will be easier to measure.
One of the common misconceptions of these models, however, still seems to linger: the relative price a merchant pays for call-based leads, visits, and conversions, is much higher than the average they pay for a click to their website. A deeper look at conversion rates help overcome these perceived concerns.
Many businesses turn to pay-per-click advertising because it’s quick, easy, and understandably affordable. The downside, however, is not as well understood—pay-per-click converts on average 2%-3% of the time, and fraud is still running rampant in certain sectors of internet-based advertising.
In the first half of 2013, the Interactive Advertising Bureau estimated 137 million invalid clicks were brought to merchants, costing an average of $0.38 per click. The total wasted ad spend was $52 million, as researchers estimate that nearly 36% of all internet traffic at the end of 2013 was from robots. Click fraud causes advertising budgets to exhaust quickly, with little return on investment for the merchant.
Pay-per-call, however, has far fewer risks because the merchant only pays when the actual consumer is on the line. Call-based leads typically convert 10-15% of the time, and have the potential to be a significant revenue generator for many merchants, particularly those in the service sector.
Because pay-per-call models are not as common as click-through models, these leads are perceived to be expensive for the average small business owner. When comparing the effective rate of calls to clicks, however, call-based leads perform better dollar for dollar, especially for the top service categories. In fact, the most expensive keyword categories on search engines (insurance, loans, and mortgage) are for transactional services that typically warrant a phone conversation anyway.
There are also a handful of other variables that advertisers must take into account when using their advertising budget on click-through models. Time of day, competition, and average cost-per-click all affect the suggested bid price. For example, searching the keyword “auto insurance” in the morning, then in the afternoon yields two different bid prices, the latter being 15% higher. Suggested bid prices are calculated by taking into account the cost-per-click that advertisers are paying for this keyword, for the user and advertiser location, and the network settings that an advertiser has selected.
What implication does this have for advertisers? Cost-per-click can vary greatly, and it’s not always guaranteed that your ad will be shown on the results page of a search engine. Suggested bid prices can change $10.00 or more, so if a business doesn’t have someone monitoring the bidding, ad spend can fluctuate greatly.
BIA/Kelsey states that 61% of consumers find it “extremely or very important” to be able to call the business during each phase of decision making, but especially when the consumer is close to making a purchasing decision. The data collected through the call is very valuable to a business.
Here at Soleo, our platform provides useful information about the calling customer; we know their intent, what kind of business they are looking for, and their general location. These calls typically result in a better conversation, which leads to a higher chance of sale or appointment.
This allows merchants to focus on performance marketing that actually performs—making useful connections to potential customers who are ready-to-transact.