Search Engine Marketing is putting a major dent into the online marketing budgets of many businesses. A December 2005 study done by SEMPO (Search Engine Marketing Professional Organization) states that “SEM was a $5.75 billion industry in North America in 2005, and will grow to $11.1 billion in 2010.”

These are astounding numbers, and should encourage us to consider: (1) How much are we willing to spend to get a customer? (2) How much money are we willing to spend to sell a specific product/service?

Paid Search Marketing is a multi-faceted business channel where complexity, relevancy and structure is considered a best practice. During its infancy we measured success based simply on clicks/increased traffic and CTR%. Later the engines and analytics tools enabled us to measure ROI of each campaign and keyword. Today this just isn’t sufficient – you have to drive to a known and acceptable cost-per-acquisition based on not only the required ROI but also gross and net margins on a SKU and keyword-by-keyword basis.

In recent years the paid engines have started to supply all kinds of nifty “bells & whistles” that allow us to try and get the most out of our budgets. But they don’t provide the tools it would take to dig even deeper to find that “right mix” that really makes sense from a business perspective. Why not let us upload acquisition cost targets or margin levels and the report back on net contribution margins after all direct marketing costs?

Maybe they don’t want us to know that we’re losing money while they hope we try to make it up in volume.

Consider this example: Suppose all of your SEM campaigns are well structured and finely tuned. You also have a high CTR%, your CPC is low, and your ROAS is hovering around 150%. In most instances, this is a very successful SEM channel. However, you then realize that your customer acquisition and product margin costs are just breaking even with the achievable 150% ROAS. Even though looks good in reports, it isn’t “cutting the mustard”. After analyzing your margins and acquisition costs you realize that a 250% ROI is necessary to make sustainable profit.

It’s easy to become so consumed with the available analytics and metrics that you lose sight of the context in which these measures and numbers exist. A positive ROI looks great, but it doesn’t mean it’s a worthy investment. To make sure you don’t get caught, know your goals, understand your acquisition costs, and establish a sensible ROI% based on your margins. Then you can closely monitor the metrics at both the keyword, ad-group and campaign levels and ensure that your paid search is really driving your business forward.

Greg Meyers is a Sr. Search Marketing Manager at Commerce360