What is your delivery vs. demand ratio for search marketing?

By Rich Devine | 2 Comments | Posted in in Analytics , Search | Permalink

Technorati Tags: keyword research, paid search, search analytics, search engine optimization, search marketing, sem, seo

Despite my best efforts, graduate school taught me all about financial ratios. Financial ratios are key indicators of a firm's overall financial health and performance. Drawn from financial statements, our nerdy finance friends polish their thick glasses, find two numbers from a financial statement and divide one number by another to arrive at a simple ratio. They look at liquidity ratios, asset turnover ratios, profitability ratios, dividend ratios, etc.

Similarly, many of us use analytics data to inform 'key performance indicators' related to our digital marketing efforts. KPIs are great, but they generally carry relevant meaning only for my business, not necessarily yours. How we derive formulas for KPIs is also very specific to our own business and data sources. For example, your definition and formula for 'conversion' is probably much different than mine.

Financial ratios, however, are basic enough to be relevant across businesses. All finance professionals use the same basic ratios. Because they are meaningful across the board, they are particularly helpful for comparing businesses within industries.

For search marketing, we often conduct performance audits that directly assess site health or campaign effectiveness for SEO and SEM respectively. These deep-dive evaluations are important, but like financial ratios, search ratio analysis helps us understand the comparative search performance of clients within an industry or competitive set.

One ratio we typically use to help clients understand existing performance compared to potential is the Delivery vs. Demand ratio. We use this ratio for both Natural and Paid Search.

Demand refers to the estimated keyword volume relevant to your brand or business. You can look at forecasted  or historical volumes -- doesn't matter.

Delivery reflects the estimated traffic comes to a brand's web site from SEM and SEO sources.Competitive analytics tools like Compete.com are great resources for this data.

Let's look at an example of Delivery/Demand ratios:
The graph above shows delivery/demand ratios for furniture web sites. If all sites were equally optimized for SEO, we would expect to see Traffic from SEO scale up or down with demand. Likewise, if each business valued paid search marketing equally, we'd expect to see delivery from SEM scale with each brand's respective search demand.

Notice, however, the discrepancy in delivery/demand ratios between brands -- both for SEO and SEM.

The SEM ratio is simply a reflection of investment -- we can see that both Crate and Barrel and West Elm have committed investment to paid search. Comparatively, the other companies are considerably under-invested. So if I'm Dania, I need to ask myself, "Why is West Elm willing to outspend me by 6x even though search demand for my brand is almost 3x that of West Elm?"

On the SEO side, the ratio clearly demonstrates the lack of delivery compared to demand for Dania and to some degree Room and Board. Based on estimated keyword demand, Dania should be earning more traffic than all competitors except for Crate and Barrel. But Dania is barely scraping any delivery from SEO, and it's not even close.

Of course the ratio doesn't tell us what is wrong with Dania's SEO efforts or lack thereof, nor what needs to be done -- but the ratio provides a quick-hit red flag that Dania should seriously evaluate their site for SEO.

So now that we see a red flag, let's see if there really is a difference between Dania's on-site SEO compared to West Elm who is seeing much more delivery.

As a really basic example of SEO effectiveness between brands, let's compare Dania's title tag usage to West Elm's:

Sure enough, Dania is not well optimized for title tags, and West Elm really seems to be consciously optimizing their tags effectively. And if you take a deeper look, beyond just title tags, West Elm has done a fairly nice job of SEO across the board, while Dania has some clear opportunities for improvement.

Whereas SEO audits and SEM assessments provide introspective insights -- ratio analysis provides comparative value for clients to understand, unequivocally, how they fare against industry standards or competitors.

Performance ratios are also ideal metrics for your scorecards, either as top level KPIs or side-bar indicators.

Here are some helpful rules for using ratio analysis:

1. Keep them simple: Remember it's one number divided by another.

2. Internal and External Relevance: Ratios should be meaningful not just to your own business -- but ratio formulas should be widely relevant and usable across businesses or industries.

3. Estimates vs. Accuracy: Much of the data you use for ratio analysis can be drawn from free or paid competitive sources. There is wide discrepancy in forecasted demand, and delivery data between sources -- but accuracy isn't really our objective -- as long as you can get a sense for proportion, that's all we need to generate a valid ratio.

4. Actionable: As with all analytics, focus on ratios that provide actionable insight and avoid ratios that are just nice to know.

So now that I've shown you mine, show me yours. What other simple ratios can you use for search marketing?