Clients frequently ask me whether or not they should engage in a sponsored search advertising campaign. My answer is generally a resounding “maybe”.

In the early days of sponsored search, also known as keyword bidding or pay-per-click advertising, the competition was sparse and the rewards were phenomenal. In the beginning, Overture was about the only game in town, and minimum bids were 1 cent. I can recall starting a new keyword bidding campaign on Overture and seeing online sales triple almost overnight. Well, those days are over. Overture was bought by Yahoo!, and is now known as Yahoo Sponsored Search, and many other players got into the act, most noticeably Google, with its AdWords program. Minimum bids increased from 1 cent to 2 cents to 5 cents to 10 cents faster than the Postal Service increases the price of postage stamps, and tons of businesses joined the programs. Thinking that this was some sort of marketing Holy Grail, competition caused prices to skyrocket for any sort of quality ad placement, and the impact of any individual advertising campaign became highly diluted. With all this in mind, should you or should you not get on board?

First of all, if you are considering a sponsored search program, I would suggest concentrating on the key players: Yahoo, Google, perhaps Ask.com, and, if you really insist, Microsoft Network. Keep in mind that sponsored search campaigns with either Yahoo! or Google will appear on a broad network of sites, not simply the two flagship sites. The partnering arrangements are continually evolving; however, your Google AdWords ads will also appear on sites such as AOL and About.com.

My next piece of advice is to try to first concentrate on improving your organic (conventional) search results through a search engine optimization campaign before spending your dollars on sponsored search. With all else being equal, most people when conducting a search will first click on organic search results which appear near the top of the first page before they will consider clicking on a sponsored search link. The perception is, quite accurately, that the results in the organic search listings are more likely to match their query, rather than representing the interests of companies which are trying to sell them something. On the same token, if you are already appearing at the top of the organic search results for any particular search term, do not bid against yourself through sponsored search. Remember, it costs you nothing for somebody to click on your organic search link, but it will cost you for that same person to click on your sponsored search link which might take them to the same page of content. Invest your advertising dollars more wisely than that.

If you cannot seem to gain a strong position in the organic search results for any particular search term (and you have already done your SEO homework and constructed your site properly), chances are that your business is in a field which is crowded with competitors. If that is the case, chances are also that the minimum bids for any kind of decent sponsored search positioning will have been driven up by competing bids. (I have seen bids in very competitive fields as high as $10.00 or more per click. Would I get involved in that playing field? No thank you!)

If the field is crowded, the trick is to concentrate on refining your bids by making your selected search terms much more specific in nature. For example, let’s say that you run a small business which makes handmade alpaca sweaters. You do not want to bid on the term “clothing”, you probably also do not want to bid on the term “sweaters”, but should more likely bid on the terms “alpaca sweaters”, “handmade sweaters”, or, if necessary, “handmade alpaca sweaters”. You see, by bidding on the terms “clothing”, you would be wasting money paying for clicks from people who may be interested in buying clothing online but who have no interest in buying sweaters. By making more specific keywords choices, you will get fewer clicks (which is good, when you are paying for each click), but your clicks will cost less (because of less competition for the more specific terms). Most importantly, because of the specificity, the traffic which you will gain is far more likely to be converted into sales. Always keep in mind that the quality of clicks is far more important than the quantity of clicks.

Are there times when you should engage in a pay-per-click program to promote a site even though you have not allowed sufficient time for SEO to gain the organic search positioning that it may ultimately deserve? Absolutely! Particularly if your product or service is time-critical, you may not be able to afford losing sales while your site is waiting to escape the so-called “Google sandbox” effect. If your product or service is highly seasonal, or if you have a new product which must capitalize on sales during an annual holiday such as Christmas, Valentines Day, or the Fourth of July, go for it!

For most businesses, simple website traffic is of little relevance. The important factor is sales, and sales are generated by traffic multiplied by your conversion ratio. Recent studies have shown the most productive visitors are the ones who reach your site directly, either through type-ins or bookmarks. This makes sense because it has always been a primary rule of marketing that it is easier to sell to an existing customer than anyone else. This rule carries through to people who have previously visited your website but not have necessarily made a purchase. Similar research has shown that, when simply comparing traffic which is generated from either organic search results or a pay-per-click ad, the ads outperform the organic search results by every measurement other than the number of page views. These factors include both the visitor:sales ratios and the average dollar amount per sale. This makes sense since most people clicking on ads either expect or are seeking some sort of commercial sales arrangement. The number of page views is reduced because pay-per-click ads usually bring visitors to a specific landing page for a featured item. This, of course, goes hand-in-hand with the rule that website traffic conversion is directly related to the number of clicks required for a prospective customer to find what he or she is looking for on your site. Most people know the rule that says, “If it takes more than three clicks, you’ve lost them.” Keeping that in mind, there is nothing more effective than a single click directly to the desired product.

There are many other factors which come into play when it comes to sponsored search advertising campaigns, including budgets, ad content, tracking, content matching, and far more. If there is adequate interest, I would be happy to expand upon any of those topics in future posts … or respond to particular comments to this post. In the meantime, I am hoping to have covered some of the basics for small business owners who are in the early stages of either considering or getting involved with their initial sponsored search advertising campaigns.