In the good old days (which, in internet terms, was about 3 years ago) search engines were the savvy online marketers golden secret. There was no cost, and a top ten ranking on a major search engine for the right terms could generate thousands of qualified visitors. Alas, the secret got out and search engines tightened up their business models to take advantage of this potential revenue stream. Today, the online marketing camp is split between those bitter pioneer webmasters who begrudge every dime spent with the search engines, and those who realize that even with all the recently implemented search fees, search engines still offer the most cost effective online marketing alternative.

To see why search listings are the most effective form of online advertising, consider that every day,  there are about 70 million commercially oriented searches done. These aren’t searches for Britney Spears pictures. These are searches launched by consumers specifically looking for a product or service.

According to a study done by Jupiter Media Metrix which compared the performance of paid placement search listings against CPM and CPC banner advertising and opt in e-mail, search outperformed the competition in nearly every category. Overall satisfaction with PPC (pay per click) listings was pegged at 41%, compared to 33% for e-mail and about 20% for banner advertising. For return on investment, PPC scored an impressive 29%, compared with 24% for e-mail and 16 and 12% respectively for CPM and CPC banners. 

Lisa Morita, Senior Vice President and General Manager, Online Business at Overture, the best known paid placement engine, explains, “Our 53,000 advertisers get the highest ROI through search, every time. People click because they’re searching for that product or service.”

So, why don’t more people use search in their online marketing? “Our number one hurdle is education,” explains Morita. “Once people try paid search listings, there’s no question about return. Generally, people try CPM banners, then try CPC banners, looking for a higher ROI. Somewhere along the line, they hear about paid search listings. Once they try it, they’re believers!”

Sorting through the Paid Search Landscape 

First of all, a quick introduction to the different types of fees imposed by search portals. They fall into three types:

Paid Placement: This is a straight bid for position, and can be found on engines such as Overture, FindWhat, Kanoodle and Google’s new Adwords Select. In it’s simplest form, paid placement means you bid on a per click basis for your keywords. The higher the bid, the higher you rank. Overture further sweetens the pot by rolling its top rankings over to its search partners, including Yahoo, AltaVista, MSN and others.

Paid Inclusion: Here you’re paying for a search engine to ensure your site will remain in it’s index. Inktomi, Teoma, AltaVista, Fast and Lycos all have paid inclusion charges. You pay a set price per URL (which means each individual page on your website) per year, ranging from $12 for Lycos and $30 for Teoma to $39 for Inktomi and AltaVista. Your paid inclusion fee does not guarantee position.

Express Submissions: This is a fee charged by the two main directory based portals, Yahoo and LookSmart. Similar to paid inclusion, this fee ($299 US per year for Yahoo, $299 one time for LookSmart) does not guarantee position, but does ensure that an editor will review your site for inclusion. While inclusion into the directory is not guaranteed, your chances of being included are quite good.

Determining your Return on Investment

As with any marketing, you have to establish some yardsticks to measure the effectiveness of your campaign. With paid placement engines such as Overture, the pay per click model makes this job a little easier. You’ll have to work backwards using average online sales amounts and visitor conversion ratios to determine the top amount you’re willing to pay for each visitor.

Cost per Click = Avg Sale Amount X Profit margin X Conversion ratio 

For example, if your average online sale is $100, you have a 25% profit margin and you sell to one of every 100 visitors, your cost per click ceiling would be 24 cents. This simple formula will serve as a starting point for setting per visitor budgets.

For engines that charge paid submission fees, return on investment is a little more difficult to budget for. Regardless of the payment model, it’s essential that you track visitors, conversion rates and average sales originating from various search sites. This is the only way you can gauge the effectiveness of your campaign.

Setting Your Priorities

Now it’s time to plan and start placing your budget. As you go through your options, start with the flat inclusion fees first. You want to put your money into the search portals that will generate the most traffic. Yahoo is still by far the post popular directory, so they have the definite edge over LookSmart for your $299 US express submission fee. For paid inclusion programs on spider-based sites, Inktomi (featured on MSN, iWon, Netscape and other partner sites) is the clear winner, generating about 14% of a search engine traffic. After, in order of priority, consider the paid inclusion programs on Lycos (8% of traffic), AltaVista (4% of traffic) and Teoma (still less that 1% of traffic, but coming on strong). While it will be more difficult to track your return on investment on results generated from these sites, I’ve found that the cost per click of visitors coming from the unpaid search listings is far less than you would normally pay on Overture or one of the other paid placement engines. The most popular crawler based engine, Google, has resisted the urge to introduce a paid inclusion program. Make sure you take advantage of this and submit your site to Google's index.

With pay per click options, Overture offers the most extensive coverage, reaching 80% of users through their search partner network. Google’s new Adwords Select program also gives you a pay per click option. Although right now Google’s paid listings only appear on Google, this search site generates a healthy 16% of all search engine traffic, making it a top priority.

Include Search Engines in Your Budget 

My last word of advice? Don’t overlook search engines in your online marketing budget. Any study that’s been done comparing search listings to other forms of online marketing have always shown search to be the clear winner. And while it’s not free anymore, when you compare the costs to a banner or pop up campaign, search engine marketing is still an absolute bargain.