The internet is evolving, we all know that. And it is evolving fast. Internet months are like dog years and they are zipping along.
In our line of work as web consultants – we help small businesses with things like design, marketing and copywriting – we get to see the problems being faced by a wide range of small and medium sized businesses. One of the biggest issues that we see relates to business models.
Most people working outside of web marketing are taken aback by the pace at which their competition has evolved online. Only six or seven years ago, if a local company launched a website they were probably the only one of their peers to do so in the area. By definition, they just appeared on page one of Google and Bing “because”. People just assumed that they deserved to be there and that getting new clients from the web was meant to be free, but those days have gone.
Now there are dozens of firms fighting to get onto page one seeking the spotlight. Everyone has a Facebook page and a Twitter profile, most of them in a state of unused abandonment.
Not very long ago we were asked to assist a lawyer in California with his website. To buy clicks in Google’s advertising program, AdWords, was around $30 per click. Not per sale nor per lead, but per visitor. As we scanned the list of terms he was interested in, we found one search phrase where his competitors were paying $269 per click. Even we were amazed.
Hopefully your sector is less developed than that. But sooner or later, if you are in a high transaction or high margin business, it will move in that direction.
Late last year, the domain name TorontoRealEstate.com was sold and the price announced as $140,000. Real estate is traditionally a high margin sector and someone realized that there is a lot to be gained by spending money to acquire leads.
The question is, how do you decide to pay $269 per click for web traffic or $140,000 for a new domain name? Who does that? Wouldn’t they be better off booking a cruise or buying a new car? Or two?
The answer comes down to really knowing the numbers inside your business. Math. Lots of it. It isn’t called a business “model” for nothing. If you cannot model and replicate it, the internet is going to be a big problem for you.
To be willing to pay $269 per click for web traffic, a company needs to be very clear about the conversion rate of every 100 clicks into genuine leads, their ability to convert those leads into clients and the expected billing and profitability of each client. It might then turn out that $269 is a good deal and the firm will make money on those visitors.
(Yes, the thought currently running through your mind is correct. If they manage to generate two clients from those 100 clicks, then they are paying over $13,000 per new client. A thought like that will make you consider the bounce rate of your website in a whole new way!)
Google AdWords is a permanent auction which means that businesses bid to be number one in the ad listings. If someone is willing to pay $267 (you need to bid more to beat them) then someone else must willing to pay more than $260 per click as well.
Since the lawyer we spoke to thought that $1 per click “sounded high” it is easy to see that he understood the inner workings of his business far less well than his competitors. Guess who is more likely to generate legal leads in his city?
Sure, his competitors are going to pay much more for those leads, but they must think they can still make a profit. If they get all the best prospects, how will he be able to stay in business?
The point of this article is not to scare you into submission, but hopefully to provide some inspiration that smart business people who really understand their numbers can dominate their space online. That could be you.
If you would like to find out more about what it takes to be a winner and not an also ran online, we’d love to speak to you.