Multiplying Your Marketing ROI

Byte to Byte with Steve Johnsen

Why do companies spend so much on advertising, where the benefit is so small—while simultaneously investing so little in search engine optimization, where the benefit is so large?

Hi, this is Steve Johnsen, and today I want to talk to you about multiplying your marketing ROI (return on investment). I’ve noticed a really interesting paradox in the business world. There are many companies that spend a lot on advertising, and get very little benefit, while at the same time they invest very little in SEO (search engine optimization), when the benefit could be huge.

We're all familiar with the fact that advertising has become MUCH less effective than it used to be. DVRs, DVDs, Netflix, new cable channels, online channels, mp3s, mp4s, iPods, and smart phones all compete for a dwindling share of the consumer's vanishing attention span. However, US companies still spend about $30 on advertising for every $1 they spend on SEO. Why is that?

I believe that advertising is still popular because it is easily understood. Many people would rather spend money on something they know—even though they know it does not work well—than experiment with something they don't know. Internet marketing requires an explanation. Search engine optimization can be confusing, and because it's confusing, it's SCARY.

And, I have to admit, there are a lot of incompetent or unscrupulous "SEO companies" out there waiting to take advantage of unsuspecting clients. (Of course, the same is true for advertising sales execs.) So yes, some companies have tried it and not gotten the result they wanted.

However, SEO, when done right, is MUCH more cost effective than an ad campaign. Perhaps the fact that companies are still spending so much on advertising and so little on SEO is good news after all. It means that there is much less competition for the companies who are investing in quality SEO!

In fact, at one company, I measured SEO to be about 40 times more cost effective than an advertising campaign, and 400 times better than trade shows.

When I ran a software company here in Denver, we marketed our software in several ways. We used print advertising, direct mail, trade shows, and online marketing, including search engine optimization, banner ads, and email marketing.

I carefully analyzed the results of each of our different marketing campaigns. What I found was pretty interesting.

Our most expensive leads came from trade shows. We invested about $150 to acquire each lead from a trade show. When we turned the sales team loose to follow up on those leads, many of them turned out to be a huge waste of time. These expensive leads had a low closing ratio, around 5%.

We did a bit better with print ads. We acquired leads at $20–40 each. When we followed up with them, we had a slightly better closing ratio than the trade shows.

The least expensive leads were generated through our online marketing. The leads cost us only a couple of dollars each. We had a high closing ratio—sometimes as high as 40%—because they were highly self-qualified leads. They were people looking for a solution to their problem, and they had taken the time to engage with us through our website.

Compare a lead obtained at $150 with a 5% closing ratio to a lead that costs $3 with a 40% closing ratio. The cost of acquiring a client through our online marketing was a tiny, tiny fraction of the cost of acquiring clients through other channels. The gap became even more significant when we factored in the cost of the sales reps’ follow-up on the trade show and print ad leads.

As long as we continued to get a positive return on the trade shows and print ads, we did continue to use those methods. However, we put most of our attention and focus on our online marketing because it gave us our best return—by far.

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