Where To Begin With SEM Benchmarking?

I love benchmarking. I measure the progress of my diet (not going well), the MPG of my car, how my stock portfolio is doing against the market, whether my favorite football team is better than it was last year, and so forth. And, since everyone reading this is a search engine marketer, you are probably just like me – a benchmarking fiend.
Indeed, when it comes to SEM, benchmarking seemingly plays a big role. It’s hard to go through any SEM conversation without the mention of “deltas” and “year-over-year” data being discussed.
I’ve noticed, however, that many SEMs only take benchmarking half-way – they benchmark their internal performance, but fail to properly benchmark their performance vis-à-vis competitors or the overall SEM marketplace.
To understand the difference, consider this sports analogy. You are an aspiring 100-meter sprinter. As such, you train relentlessly day-in, day-out. On your first day of training, you clock a time of 19 seconds. After one week, you’ve reduced your time to 16 seconds, and after three months, you are down to 13 seconds. From 19 to 13 seconds is not too shabby; that’s a delta of 32%! This would be what I call “internal benchmarking.”
Now, let’s say that you decide to try out for the Olympics. You register at a regional qualifier event, ready to take that first step toward a gold medal. The gun goes off and you achieve another personal-best, 12.5 seconds! Unfortunately, the rest of the field comes in at between 9.8 and 10.1 seconds, so they were already doing interviews by the time you crossed the finish line. That’s an example of “external benchmarking.”

Internal SEM Benchmarking – It’s Pretty Easy

There are tons of tools available to conduct internal benchmarking of your SEM accounts. Inside AdWords, for example, you can easily benchmark virtually any metric against the prior period, the same period last year, or even a custom benchmark by simply turning on the “compare dates” feature in the date range drop down, as shown below:

I also like the dimensions tab in AdWords, which doesn’t do “delta” benchmarking, but does allow you to compare days of the week, geographies, devices, and other levers quite easily.
A sample of some of the things you can benchmark via dimensions is shown below:

So, if you simply want to know whether your profit has improved versus the same time last year, or whether a certain geography performs better than another, basic tools available inside Google and Bing will give you good data in short order.

External Benchmarking – Ah, There’s The Rub

For a lot of SEM-driven businesses, year-over-year growth is not the ultimate metric of success. That’s right – you heard that correctly – your SEM profit could grow substantially year over year and that might actually be a sign of failure.
How so? Well, let’s say you are in a fast-growing industry, like mobile app development. If the market is growing at 100% a year but your business is only growing at 50% a year, you are growing your business but losing market share.
The same scenario exists in search engine marketing; if you are doing a B+ job of SEM management and someone else is doing an A+ job, that effectively means that you are underperforming relative to your competition.
The challenge with external benchmarking is figuring out if you are actually the B+ or A+ SEM. Unlike internal benchmarking – which, as shown above, is easily measurable through deltas – you can’t just ask your competitors for a login to their AdWords account and instantly determine who has the better-optimized account.
Here are a few external benchmarking techniques that can collectively help you arrive at a grade for your SEM campaigns:

1. The Lin-Rodnitzky Ratio. At PPC Associates, we’ve developed a simple way to calculate the health of an AdWords account, which we call the Lin-Rodnitzky Ratio(or L/R for short). The ratio is simply the CPA of all queries in your account with at least one conversion divided by the ratio of all queries in your account, regardless of whether a conversion occurred.

So, for example, if the CPA of 1+ conversion queries is $25 and the CPA of all queries is $75, the ratio is determined by dividing $75 by $25, for a score of 3.0. What we’ve generally found is that a well-optimized account has an L/R ratio of between 1.5 and 2.0.

Ratios over 2.0 tend to indicate excess fat in the account and ratios under 1.5 indicate an overly conservative account (usually too much focus on brand terms). You can learn more about the Lin-Rodnitzky Ratio here (pdf).

2. SpyFu “Kombat.” SpyFu has a nifty tool called Kombat that allows you to compare your keyword set and ad spend versus those of up to two competitors. While I find SpyFu (and all keyword research tools) to be “consistently inconsistent,” I like the Kombat feature because it is a quick way to see whether competitors are doing something that you aren’t.

For example, if two of your competitors are heavily investing in a certain set of keywords and you are not, that’s usually a sign that you are missing an opportunity!

3. SEM Growth vs. Industry Growth. As I noted above, if the growth of your overall industry is outpacing the growth of your SEM revenue and profit, that may indicate that you are not maximizing your SEM opportunity.

This is particularly relevant when you find that you always seem to be outbid by the competition for top keywords. In such an instance, you are either missing some SEM techniques (e.g., the right ad text to achieve good quality score, proper account structure, negative keywords, etc.), or your company is falling behind your peers (which is a problem that the SEM often cannot fix!).

4. SEM Growth vs. Other Channel Growth. If other marketing channels are rapidly outpacing the growth of your SEM campaigns, this might indicate a problem with your SEM strategy. I list this test last because channel growth is frequently driven by externalities that have nothing to do with the quality of strategy or execution.

That said, an SEM campaign that is consistently underperforming on a year-over-year basis against other channels may be a sign that some tweaking needs to be performed.

All Benchmarking, All The Time

SEMs are in high demand today because we are data-driven and ROI-positive marketers. We are “profit centers” instead of “cost centers” (hello, branding agencies!). As such, benchmarking is a key tool in any SEMs toolbox.
It’s time, however, for us to up-level our benchmarking game. Internal benchmarking alone is reminiscent of Plato’s allegory of the cave; without external comparisons, it is impossible for us to differentiate between true success and the illusion of success. It’s time we all leave the cave!
Opinions expressed in the article are those of the guest author and not necessarily Search Engine Land.