Marketers can use Linear Programming to Optimise Search Budget

Marketers Can Use Linear Programming to Optimize Search Budget

The complexity of search engine marketing (SEM) cannot be overstated and yet a majority of search marketers avoided complex problems by over-simplifying the problems. Usually, marketers depend on their media agencies to optimize their search budgets and set KPIs for their agencies. Unfortunately, these KPIs are not useful in optimizing the budget and can even work against them.

Optimizing to get lowest cost per acquisition

I had asked a few marketers on how they brief their agencies. The typical answer is “It’s a no brainer. We are into performance marketing. We optimize for the CPA and our agency have to show us the result weekly to show that the CPA is dropping”. Some of you may be nodding your head thinking that these are the better search marketers. Some of you may even bow your head in shame as you may not even have established the benchmark for CPA and would not be able to use CPA as KPI for your agency. However, I am going to show you that CPA is not the holy grail of search engine marketing.

Any serious marketers would know the concept of a funnel. People higher up the funnel are less likely to convert and people who are lower in the funnel exhibit purchase intent and are likely to convert. Though there are many other models on customer decision journey (the most prevalent one is from Mckinsey Quarterly), the concept of the funnel is easily understood. “Cheap hotels” is further up on the funnel as compared to “expedia book hotel in san Francisco online”. And which keyword is cheaper? Needless to guess, bidding for latter would cost you less and would convert better.

Why would setting CPA as a KPI backfire? After reading so far, you would have guessed what your media agency would do if the CPA were overly high. They would start bidding your brand keywords and other keywords that signal purchase intent and drop all top-of-funnel keywords. While this look good for the CPA, there are other signs that things are not going right. Sales (conversion number) drops and the budget doesn’t burn as fast as before.

Setting CPM as KPI

But be wary of going the other extreme. Setting CPM as a KPI does not help either. One can easily achieve high CPM simply by putting in broad keywords. Imagine you are a hotel in San Francisco. Would bidding for “holiday”, “tourist”, and “attractions” type of keywords do your business any good? Chances are you would increase your sales slightly but if you numbers depend on it, you would probably drop this strategy. If it doesn’t make business sense at all, why would you want to set CPM as a KPI, let alone sole KPI?

How can Linear Programming Help?

A good campaign must achieve a few objectives. It must create awareness so that people who are unaware of your brand can get to know you. It is especially important if your brand is reputable but is unfortunately not the top of mind. Capturing the attention to people who are using top of the funnel keywords is important as that may turn into a conversion later.

Similarly, there must be enough keywords in mid funnels when people are doing active research and evaluation and of course, your shop must be open when your customers are making a purchase. However, telling media planners that you are setting a KPI for CTR, CPM, CPA, they would have a shock because there are too many variables for them to optimize.

This is where Linear Programming comes into play. For the marketers without bid management software with sophisticated portfolio management algorithm, Linear Programming can be done using excel with Solver. All you need is to get campaign keywords, the impression generated, number of assists that keywords generally provide, the average CPA for the keywords and you can set up multiple constrains and let solver do the iterations for you to find an optimal solution.

Sure, using solver and Linear Programming is certainly more tedious than setting single KPI and moving budgets around to meet it. But, bear in mind, the effort spent in learning this tool will reap you many folds of rewards.