Google’s Panda Algorithm Update: Is it Grizzly or Good for You?

Google Panda Bear

Was Google Panda Good for You?

The lessons of Google’s Panda algorithm update launched on February 24 are simple:

Grizzly Google Panda Update

Or Grizzly?

(1) Don’t do black hat SEO.

(2) Think hard about the risks of grey hat SEO.

(3) Do what Google tells you in their extensive guidance pages.

(4) Design good website usability. That is, put your human audience front and center.

Google’s Panda update justly punishes sites that have more than one of the following, but a single item that is especially abused may be enough alone to cause demotion:

  1. Scraped (or stolen) text content.
  2. Websites with lots of pages without unique content. When there are too many such pages, probably the whole site is demoted, not just those pages or categories.
  3. Excessive SEO keywording.
  4. Excessive intra-site links.
  5. Maybe more punishment then prior based on poor incoming links, according to some researchers.
  6. Maybe poor code. If not, expect this to play a greater role over time, because Google rightly assumes some correlation between a site with good code and a site with good content.
  7. Poor usability. It’s unclear what site features Google’s algorithms would identify as a proxy for poor usability, but here again, it makes sense that Google would see a correlation between good usability and searches being satisfied with Google when the searchers find first a site that pleases the brain.

Some of the above items are debatable and still being investigated by SEO researchers (including DISC), but the consensus is that items 1 through 4 almost certainly prompt demotion. And they all entail black hat or grey hat SEO.

White hat SEO endures for years, without risks which reduce the current value of your company. DISC has always practiced white hat SEO, and so far we have not found a single current client of ours punished by Panda (although a long dormant client who did much of their own SEO has come back to DISC for help in redressing a 40% drop in business starting on the day Panda went live).

In some forms of managerial accounting, risks are factored into ROI projections of capital investments and into the current value of the company. This logic applies to investments you have already made, so that the risks of those investments failing at any time in the future reduce the current value of your firm. Some simple math illustrates this principle.

  • $100,000 capital investment (in a new machine or in SEO, for example) is predicted to improve profits by $500,000 in one year.
  • But there’s a 50% risk of failure (in equipment or SEO) causing, in turn, a 50% reduction of the $500,000 ROI.
  • This means $275,000 ROI, not $400,000 (subtracting the $100,000 investment from the pre-risk-adjusted $500,000 increase in profits)

However, black or grey hat SEO can risk decreases in current organic-based profits, never mind the risk of not achieving increases. That math looks like this:

  • $100,000 capital investment in SEO is predicted to improve profits by $500,000 in one year.
  • But there’s a 50% risk of failure in SEO causing no increases and a 50% reduction of the, say, current $1,000,000 in annual organic-based profit.
  • This means negative $100,000 ROI (loss), which is $600,000 less ROI than would be the case if you eliminated the 50% risk.

While it is impossible to predict exact ROI and risks, the principle of risk nonetheless holds, and it should guide your SEO investments. If you take no SEO risks and, per Panda, you invest in website usability as well, or if you invest in eliminating all current risks, then the present value of your company rises immediately.

Business, like equity investments of all kinds, is all about reducing risks. Less risk of future losses via white hat SEO and usability enhancements adds current value to your business portfolio — and certainly to your peace of mind.

Should You Hire an In-House SEM Employee?

Should You Hire a Search Marketing Employee?

Should You Hire a Search Marketing Employee? (photo courtesy of

My previous post discussed considerations in contracting with an SEM consultant, and concluded that you should (1) ask how the firm trains new and old employees and (2) interview the people who will actually work on your account. Here I address criteria for hiring in-house.

My 2003 article “SEM: In-House vs. Outsourced” published at (Search Engine Marketing Professionals Organization) is still well worth reading. It’s executive summary states:

“SEM (Search Engine Marketing), which consists of the distinct activities of SEO (Search Engine Optimization) and paid placement, requires exceptional linguistic and technical aptitude, at least six months of experience, and ongoing research and training. Therefore, a manager who would like to have SEM expertise in-house should expect to allocate at least $50,000 (in the US) towards employee salary and training. Good programmers rarely make good search engine marketers, because of the highly linguistic nature of the work, so that a manager should be cautious about using existing web programmers for SEM. Marketing personnel may have the linguistic and product knowledge, but they need to have substantial technical knowledge of web programming relating to search engines. Even in SEM firms, it is rare that one person possesses sufficient mastery of the various fields of knowledge that impinge on SEM, and people who do have this mastery are likely to cost more than $50,000 per year.”

I then discuss the core aptitudes required of an SEM employee, in order of importance: linguistic aptitude, research skills, brains and education, technical aptitudes and experience, SEM experience. The only change to that priority I would make now is to move SEM experience up one notch.

I also discuss the kinds of business situations that warrant hiring.

Consider the problem of needing less SEO work after year one and the lack of synergies when using just one SEM employee. In theory, if any one facet of search marketing will cost more than, say, $80,000 in labor per year, you’re better off hiring in-house. However, the various parts of search marketing these days work best when synced together with several synchronized people each commanding distinct disciplines within search marketing. Such a team can deliver far more synergies than a single employee. Also, many SEO tasks require a majority of the labor in the first year, at least on a single web site that doesn’t undergo major changes each year, which means that an in-house expert would eventually run out of cost-effective jobs.

The tendency is to not hire soon enough because most businesses aren’t qualified to project the ROI of search marketing, and many firms have been burned by unscrupulous or incompetent SEM firms in the past. I advise paying an SEM firm well to assess the ROI of hiring in-house vs. contracting an SEM consultancy. If you don’t pay the firm well for this work, you may end up with a proposal disguised as an objective study which concludes that, what do you know, you should engage that SEM firm.

Why are Search Marketing Firms like Hospitals?

Who is the search marketing "Professional" cutting into your website

Have you met the search marketing employee cutting into your website?

The hospital’s website rocks, but who the heck will be holding the scalpel over your anesthetized body? Likewise, a search marketing firm can sport a fantastic website, employ great sales people, be led by a luminary (who used to do the actual work), but success for your website depends entirely on the person or people actually doing the work for you.

In search marketing, there’s no upper limit to the expression of genius. An SEO or PPC Einstein would blow away the best of us every day. Like law or medicine, the professionals working directly on your case make all the difference. But in law or medicine, usually the goal is either accomplished or not: a surgeon doesn’t remove 80% of a tumor, and you’re either in jail or you’re not. In search marketing, each step in the sequence of work – a sequence which itself is a product of many brilliant choices about tools and processes – the search marketing pro (or his pre-conscious mind) will make key decisions almost every minute.

For example, in SEO, selecting key phrases to lace into your website is helped by software that ranks hundreds or thousands of synonymous phrases, and the final choice of phrases depends on an intuitive grasp of how much your inbound linkscape and subsequent PageRank will enable you to win for the shorter, more competitive and searched phrases vs. long-tail phrases for which page one positions are more likely. When writing the selected phrases into your text, the choice of repetition and close variants should factor, quickly and intuitively, the amount of conceptually related words and phrases already in that page’s copywriting. In theory, one could make such choices using more software and statistics, but that could take hours for every word choice. The SEO Einstein’s preconscious genius would make most of those choices with lightning speed and staggering acumen.

In PPC, rigorous and standardized optimization procedures that any bright employee could follow would accomplish a lot of success for you. However, the PPC Einstein would rapidly intuit the optimum blend of ad copy, landing page content, bid amount, and exact, phrase, or broad match with negative keywords – all prior to testing, so that from day one of the campaign weekly optimization is several months ahead of your competition.

Of course employee training, experience, and permission to research on company time are as vital as innate aptitude. A good search marketing firm will have procedures for efficiently transmitting to both new and seasoned employees the knowledge and wisdom in the firm’s and SEM industry’s leading minds. Still, some employees will never achieve that grace in search marketing which emerges from a rare blend of linguistic and statistical perspicacity.

So what does this all mean for your prioritization of web marketing investments? More than I can say in one blog post, but the salient advice for the marketing manager seeking a search marketing firm is to

  1. Ask how the firm trains new and old employees;
  2. Interview the people who will actually work on your account.

If you are considering hiring an in-house search marketer, stay tuned for my blog post next week.

Can Spending Too Little on PPC Labor Cost You More?

Balancing PPC Labor and Click Costs

The Tug of War between PPC Labor Time and Click Costs

In previous posts I discussed how to allocate investments in SEO, and DISC’s head PPC guy, Dale Webb, recently posted on determining your ideal PPC budget. Here, I try to help you understand that if you spend too little in monthly PPC management, you will pay more in click costs – often more than revenue or profit per conversion.

Think of it: if you divide costs by hourly rate to get labor time, even $2000 a month at a suspiciously low $100 per hour is less than one hour per business day. And think about the work that must be done in PPC (and in shopping comparison site marketing, which is also PPC-driven, except for Google Product Search):

One must

  • write brilliant ads with the discipline of haiku;
  • assess and choose from among thousands of phrase combinations — each with options for exact, phrase, broad, and negative matching;
  • produce ad groupings that maximize quality score and minimize the risk that a few bad ads will spoil the adgroup barrel;
  • marry each landing page text with each ad;
  • track which of several positions produce the best combination of clicks and conversions, for every ad;
  • do split A-B and multivariate tests on landing pages to maximize conversions;
  • report clearly the results, the plans for next month, and the precise ROI;
  • keep reading and learning to stay apprised of the most profitable tactics;
  • and choose and tune many other variables that the search engines allow you to alter.

All of this work must be done by an excellent mind with exceptional linguistic and analytic aptitude, and lots of experience. If you don’t do this work at least as well as your top 10 competitors, you will pay much more in click costs relative to conversions than you will save in labor cost.

Of course the extent and acumen of your PPC competition is a major variable in the calculus of how little labor time you can get away with before you fall below maximum ROI towards negative ROI. But remember that Google’s market capitalization is close to GE’s because 95% of Google’s enormous revenue comes from its PPC, which means few industries are under-investing in PPC now. Increasingly, if a website has mediocre or worse usability (conversion rates), or if a business’s margins are too low, no amount of PPC expertise and time will produce profit.

Having managed PPC campaigns for as long as they have existed, we at DISC have found that $1500 per month in labor (10 hours per month, or 2.5 hours per week) is the minimum labor time – and that’s in industries with poor PPC competition, and after more time up front to set-up the campaign. Average PPC competition requires at least $2500 per month, usually $3500. Of course large businesses often spend upwards of $50,000 per month in labor to achieve maximum ROI.

The substantial amount of labor time required to find, implement, and tune the lowest hanging fruit means that you can’t just dip your toe into PPC to “test” the waters. A valid test must look at the best opportunities in PPC, and ascertaining those opportunities takes highly skilled time – the easy quick pickings have long since been bid up to the max.

If you are among the fortunate few, your resistance to spend what it takes is shared by most of your competition, which means you have opportunity to win profitable business that they neglected. Moreover, because there is a shortage of PPC talent, a gifted (and thus well-paid) PPC manager – who is given enough time — can deliver great ROI even if your collective competition is heavy. Fortune favors the bold – and the smart.

What SEO tools Should You Use?

SEO Tools and Tool Sets

SEO Tools and Tool Sets

If you decide to do SEO in-house, what tools should you use? Companies create SEO tools for link bait, leads, and cash flow if the tool is for sale. Those incentives have spawned literally thousands of SEO tools and scores of tool suits, both free and paid. How can you know which to use?

Unfortunately, it takes a lot of time and expertise to (1) quickly assess whether a tool is worth further assessment, and (2) evaluate the accuracy and usefulness of each candidate. For example, spend a few hours looking at free SEO browser ad-ons, and you may find the impressive tool. I use it regularly for quick snapshots of a site’s SEO health. However, it can wrongly report SEO deficits. You would discover such errors only by doing careful confirmation tests or by running an SEO technical audit by cherry-picking the best of many tools and by manual testing where possible. (I know, we’re in chicken-egg land, for I’ve posited a-priori knowledge of where to cherry pick SEO tools). For another example, WordTracker for SEO keyword research is very useful, but what are its biases and weaknesses, and which of its options should you choose and why, and when do you need to use other tools to supplement data coming from its weaker points?

The fact is that there is no single, simple choice of tool for any part of the SEO process. The best SEO firms constantly evaluate tools, in part by running different ones in parallel, and in part by doing more manual tests to spot check tools that, in the past, seemed to work fine. This takes time and expertise, which is one reason that SEO firms can add value despite higher hourly rates than employees. Of course you can train an employee to get sufficient expertise to evaluate tools, and then pay the employee (or yourself) to take the time to constantly test the tools, but the ongoing need for such tools on the one or two websites you own probably won’t justify the investment in R&D and training.

This case of the micro-economics of selecting and using SEO tools connects to a broader economic trend in search marketing: as the need rises to do SEO completely and correctly to get results, and as the complexity of SEO increases, ever larger small businesses are excluded from effective SEO – and ever more unscrupulous SEO firms swoop in to offer services for prices that will not and do not support adequacy. True, new local search marketing channels are delaying this trend for small businesses serving local markets, but this only slows the trend. There are huge economies of scale in SEO, and I wonder whether this trend reflects a root cause of the world’s growing income inequality.

Bottom line: spend at least 15 hours each for evaluating SEO tools for each of SEO technical auditing, keyword research, and SEO results reporting.

What Kind of Payment Plans are Available in the SEO Industry?

SEO payment plans and contracts

You’ve climbed a mountain of information by which to decide how much to invest in SEO. Now you’ve got to pay for it. What are typical payment plans? When is it worth hiring in-house, and what are the pros and cons of doing so?

One SEO payment plan that I’ve covered elsewhere in depth is pay-for-performance (PFP): see and PFP deals are complex and span at least a year. One type of pay-for-performance plan I don’t discuss in those articles is pay-per-position because that model has been broken by the large and constantly changing range of search engine positions based on such variables as personalization, geography, time, previous searches, continual experiments by search engines, and other factors that render proof of position, and calculation of payments, impossible. If you encounter such payment plans, either the firm offering them is way behind the curve, or their fine print accounts for variations in position in ways that could make future payments a point of ongoing contention. Here I focus on typical pay for services contracts.

At DISC, our proposals offer three options that cover the range you’ll find on the market:

  1. Businesses with sufficient budget prefer to get the benefit of all the work as quickly as possible, and have DISC do all the high priority services within a few weeks. (This cost a minimum of $5000, averages about $12,000, and can go upwards of $100,000 in the first year).
  2. To spread out costs over time, some business opt for an initial payment to cover the first round of highest priority work, and then pay monthly for 5 or 11 more months to cover the next most cost-effective tasks.
  3. A third alternative is simply to pay for one of the services, and contract for other services later. However, the more services you do together, the more synergies happen.

Most SEO work is done one-time and endures for years. Monthly retainers should be use for SEO work on additional pages or for other SEO or web marketing, not for tweaking recently completed SEO. The reasons for this are difficult to summarize, but in short, the search engines don’t change their on-page algorithms nearly as often as off-page algorithms, and even when on-page algorithms do change, the rules of good SEO keyword research and SEO copywriting rarely change in synch. So unless the language of your industry changes rapidly, don’t sign on for SEO plans that nebulously tweak SEO that should have been done right – with diversification to deal with minor algorithm changes – in the first place.

Of course you could also hire an SEO employee. In theory, if any one facet of search marketing will cost more than, say, $80,000 in labor per year, you are better off hiring in-house. However, the various parts of search marketing these days work best when synced together, which means that an SEO firm with several synchronized people each commanding distinct disciplines within search marketing can deliver far more synergies than can a single employee. SEO technical, CMS & Database SEO, SEO keyword research and copywriting, and SEO ROI reporting each demand expertise rarely possessed by a single person. Also, some search marketing tasks require a majority of the labor in the first year, at least on a single web site that doesn’t undergo major yearly changes, and most SEO is one-time and endures for years, which means that an in-house expert would eventually run out of cost-effective jobs. (Link marketing and SEO’d social media are ongoing tasks, but I don’t categorize that work as strictly SEO, and even in link marketing, there are diminishing marginal returns on each new inbound link added).

If you do decide to hire in-house, my 2003, SEMPO (Search Engine Marketing Professionals Organization) article on the topic remains well worth reading:

Posted in SEO

How Much Should You Invest in SEO within the 80-20 Rule?

Prices for SEO

How Many of These Do You Need for Effective SEO?

Uh-Oh!: This post has lots of numbers and is not chatty, fun, or easy to read. It is intended for marketing managers who really want to figure out what to invest in SEO. You can read just the bold text for a quick overview.

My post two weeks ago broached the 80-20 rule in SEO, and it suggested that because so many managers don’t go further than 20% — if they invest at all – pay-for-performance deals can unlock profits for both agency and client. But how are you to know what is the realistic 100% you could invest in SEO, and thus what the 20% would entail? This post will help you to ascertain that 20% by roughly calculating the 100% first.

Of course and a 25 page brochure-ware website will each have very different 100%s. So let’s take two different kinds of websites to illustrate the range. One is a consumer ecommerce site selling 50,000 artist supplies (over 50,000 pages) and the other is a 25 page website promoting a civil litigation firm. Vastly different though these websites are, the prioritized list of SEO tasks is very much the same. Some of these SEO tasks require the same amount of time for both websites, and some of the tasks depend on the number of pages.

At the bottom of this post, I give rough time estimates based on DISC’s long history of tracking hours. Assign a monetary value to your team’s time (assuming your team knows what to do, which is a big assumption), or multiply hours by the hourly rate of a prospective SEO firm. DISC hourly rates for SEO are $175, with quantity discounts. Expect an average of $150 per hour on the market now. Rates go as high as $450 per hour. If rates are much less than $125 per hour, someone is getting hurt, probably you. On the other hand, a client may have or get a qualified person on staff, so for the sake of a rule of thumb, let’s put the hourly rate at $75 per hour. Also, remember that the great majority of this work is one-time and lasts for years.

A small site’s maximum is roughly 5500 hours (minimum is 127 hours). 5500 hours x $75 = $412,500 x 20% = $82,500. That may seem huge, but many professional service firm could make that back in one year easily. Below I mention the big effect of cutting video marketing and international marketing.

A large site’s maximum is roughly 56,000 hours (minimum is 254 hours). 56,000 x $75 = $4,200,000 x 20% = $840,000. Again this may seem huge, but consider that this can create tens of millions in sales in the US and much more internationally. If those new, additional sales came to a mere 8.4 million in the first two years, that puts the SEO cost at about 10%, and subsequent years are gravy.

In both cases, cutting international marketing and video marketing (which is as much or more about conversions rather than SEO), brings the 20% in the 80-20 rule to $5900 for the small site and $760,000 for the large site. Cutting the 50,000 product page SEO, and relying mostly on CMS & Database SEO, which can do a substantial amount of SEO automatically, reduces that 20% to about $100,000 for the large site.

In the old days of SEO, say from 1997 through 2005, SEO earned such huge returns when done right (though few knew how to do it right) that one did not need to spend much time calculating the optimum investment. Now it does take some time to make this calculation, but it is doable. Create a spreadsheet with various realistic increases in organic traffic x conversion rates x average gross profit. Consult with an experienced SEO person to learn how much work is needed to reach those increases. Of course DISC offers such services, and while this service here and at other good firms can take a few thousand dollars of time, you end up with a clear vision of the risks and rewards of investments – from 20% to 100% of the maximum – in SEO.


The numbers below are a very rough, but a good starting point for the manager considering SEO investments.

Practically speaking, some SEO tasks have no upper limit except what is determined by reaching the point of negative marginal return (that is, each dollar invested in a given SEO task returns less than a dollar in gross profit). This is a case where a good spreadsheet meets a good SEO person. Given gross profit per conversion (or lead tantamount to a conversion), an experienced SEO person can make a safe conservative guess at when negative ROI begins. That then marks the 100%.

I exclude social media marketing and link marketing, even though they are related to SEO (I consider link marketing distinct from SEO, though many lump the two together under SEO).

SEO jobs that take about the same amount of time regardless of the website’s size, content, and target markets:

  • SEO Technical Audit & Repairs – 8 to 16 hours, depending on amount of fixes needed.
  • Google and Bing Webmaster Services & XML SiteMaps – about 6 hours
  • Local SEO and Internet Yellow Pages (IYP) – minimum 4 hours, maximum 20 hours (per physical location)
  • Sub-Total – 20 to 48 hours

SEO jobs that take more time depending on the size of the site:

  • CMS & Database SEO – small site, 20 hours to 40 hours (The 25 page Brochure-ware site may need only 20 hours for manual application of the rules for all pages); Large ecommerce site, 40 to 80 hours.
  • Keyword Research and SEO Copywriting – small site, 20 hours to 80 hours; large site, 20 to 50,000 hours (an hour per page, plus complete keyword research)
  • SEO Results Reporting – small site, 12 to 24 hours; large site, 24 to 100 hours in a year (about 4 hours per month)
  • SEO’d Video Marketing – small site, 5 hours for SEOing one video to 100 hours for professionally producing and SEO placing over 20; large site, 50 to 500 hours.
  • SEO’d Blog Marketing – Small site 50 to 200 hours per year; large site 100 to 400 hours per year.
  • International SEO – Minimum of 20 hours for both sites; a huge maximum determined by point of negative marginal returns, but let’s cap at 5000 hours.
  • Sub-Totals – small site, 127 to 5,444 hours; large site, 254 to 56,400 hours
  • Grand Total hour – small site, 147 to 5,492 hours; large site, 274 to 56,448 hours

The 80-20 Rule in SEO

The 80/20 RuleSo you’ve decided that you want the free, relevant traffic delivered by SEO, but how much should you invest? That’s one of the toughest questions you’ll ever have to answer, for it asks you to predict the ROI of SEO vs. all other web marketing. By mining in-house and industry data and by using predictive tools, you can arrive at a good allocation. But before you do that, I would like you to step back and consider the 80-20 rule in SEO investments.

This blog post is derived from DISC’s Rob Laporte’s more extensive article, The 80-20 Rule in SEO, CRO, and Social Media, published in the Winter 2009 edition of Visibility Magazine.

The 80-20 rule is another name for “The Pareto Principle,” which was coined by the business management thinker Joseph Juran in the early 1940s. It is based on mathematics, and has been applied in economics, in such business management programs as Six Sigma, in The 4-Hour Workweek by Tim Ferris, and even in wardrobes, where often 20% of one’s clothes get 80% of the wear. (Thanks to for the facts in that summary). Business people often hear the 80-20 rule in connection with sales, where 20% of the prospects or clients bring 80% of the business.

What many marketing managers don’t understand, especially in small and medium-sized businesses that are less rigorous in managerial accounting, is how to apply this rule when allocating web marketing dollars and time and when choosing the services of web marketing firms.

The 80-20 rule is merely a rule of thumb, and it is difficult to know (1) how much more or less than the 20% of maximum you should invest and (2) what activities should be part of that 20%. Is it worth paying for and taking time to use the more expensive SEO keyword research tools offered by the likes of Hitwise, comScore, and Enquisite? Will you earn positive ROI by going beyond giving a good copywriter a day or two of training, and instead hiring a dedicated professional or spending several thousand dollars in training? The answers differ in each web marketing activity and require long experience with the marketing ROI for diverse web sites. This requirement adds value to the wise and honest council of well-established search agencies.

The 80-20 Rule in SEO

My Visibility Magazine article, “Is KEI Useful?” (Fall 2009), explains: “Keyword research follows a variation of the 80-20 rule: the last 20 percent of perfection can take 80% more time. If your potential ROI and your order fulfillment capabilities are sufficiently high, then it’s worth finding the funds to factor KEI, or even to spend the tens of thousands of dollars on the more expensive keyword research tools.” The mirror image of that statement is, the first 20% of the enormous, maximum amount of time one could spend in keyword research generates 80% of the value in the final keyword lists. The 80-20 rule applies to SEO copywriting as well: the final 20% of perfection in lacing in both key phrases and conceptually related phrases according to optimum frequency, density, and distribution can take 80% more time, and the first 20% of labor can deliver 80% of the results.

Implications and Applications: SEO, as opposed to PPC, has much less predictive data by which to ascertain the reasonable maximum investment and thus the amount of labor cost comprised by the first 20% in the 80-20 rule. As in PPC, the tide of competition is rising, although several studies reveal a dramatic lag in SEO investments relative to PPC and relative to the clicks and conversions delivered by organic vs. PPC listings. Given the saturation in the PPC market, and given the “New Normal” economy, firms have been flooding into SEO during the last two years or so. While I still see plenty of low-hanging fruit in this field, I’ve also observed SEO proliferating. Like conversion rate optimization but unlike PPC, the first 20% of SEO will almost always produce positive ROI because there are no click costs and probably most of your competition has under-invested in SEO. For more about the content and costs of this first 20% of SEO, please see “One-Time vs. Ongoing SEO” in the December ’08 Visibility Magazine. If you have already done the first 20%, then, in order to ascertain how much more SEO is worth doing, you’ll probably need consulting by a pro with long experience doing SEO for many different businesses.

Does the 80-20 Rule Suggest Pay-for-Performance (PFP) Deals?

In a longer blog post I would include examples of spreadsheets by which my firm evaluates PFP and revenue share deals. Such deep analysis often shows that, while a modest 20% investment is certainly worthwhile, one would make much more profit, even if less marginal returns, by investing more like 60%. Yet many marketing managers are reluctant to spend even the 20%, especially in this economy. This situation creates enticing opportunities for agencies to do what great capitalists have always done during depressions or “great” recessions: take more ownership of businesses, in this case by deals that claim a few years of results in exchange for non-paid work up-front. This helps the clients too, by reducing their risk and up-front cost and by aligning incentives, though at the cost of probably paying more in the end.

Search agencies, enriched by experience and data from all kinds of client histories, are well qualified to ascertain the first 20% in the 80-20 rule and how much more than that 20% is worth doing, while prospects and clients are likely to under-invest. This situation, together with sophisticated software and analytic spreadsheets, creates enormous opportunities for both agencies and clients to reap rewards from an optimum investment point between the 20% and the 100% within the 80-20 rule.

The Social Pay-off in Profit-Sharing Deals

My upcoming article in Visibility Magazine, “Revenue Share Deals in Search Marketing,” explains the pros and cons of such deals, but here I want to focus on a less numerical and more social facet of the mutual win.

The Social Pay-Off

Revenue share deals span at least a year, and where a lot of work is involved, can span 3 years or more. So this is a long-term relationship (at least by Hollywood standards), if not a marriage. Because the SEM firm or free-lancer has incentives completely in line with the client, who is now really a partner, the talks and emails tend to be more enjoyable for both parties.

In revenue share deals both parties share the joy of success more than in typical pay-for-services contracts. Sure, I’m happy when a typical pay-for-service client wins (OK, I confess to being a little miffed when, back at the turn of the century, a whole family retired early and wealthy because of a mere 20G of my firm’s work). But I don’t know, maybe it has to do with some hunting instinct: if the partner and I are both strutting back to the camp with a big carcass on our shoulders, it just feels like, “Yeah!, that’s good business. Let’s do it again soon, like tomorrow.” And sure enough we do it again tomorrow because that’s the deal.

The same is true with commiserating on disappointments about one or another tactic employed. The client isn’t dismayed that the firm made their money, and, well, sorry the results fell short. Nor is the SEM firm left feeling a little guilty. Of course, I’m only imaging this – my firm has never done anything in a revenue share that did not succeed marvelously. Bosh! But seriously, failure is very rare when a good SEM firm has incentive and the client’s offering meets a market demand. Instead, both parties learn from the failure and move on in amity together.

Like any business deal, revenue sharing contracts are fundamentally about profit, but at the end of the day, it’s nice to feel the mutual, social experience of walking – and running and jumping — with a fellow traveler down the paths of profit together.

I would be grateful to hear about your experiences with a revenue share deal, and how you felt about it along the way.