The First Waste of AdWords – Excess Inventory

In The Lean AdWords System by ptabor0 Comments

In a previous article I argued that digital marketers have much to learn from manufacturing titans. The point was that standardization of processes, systematic problem solving, continuous improvement, and removal of waste are essential to running successful operations. It’s this last point I want to elaborate on in this article.

The First Waste of AdWords – Inventory

The first waste, the waste of inventory, is the easiest to deal with. While it’s intuitive that for product based businesses it’s bad to carry inventory for any real period of time, it’s not as obvious that there is an analogy for AdWords. It’s worth noting that Facebook ads don’t suffer from the same sort of waste, but have their own set of issues.

So what’s the analogy? In AdWords, I argue that keywords are the equivalent of inventory. How can I justify this? Consider the following:

You “purchase” them in the sense that you bid on them in the search engine.

You “transact” them in the sense that when someone clicks on the ad you are giving up money in exchange for a lead and hopefully a sale.

You “carry” them in your account, and they can go bad and cost you more money. Quality score is the reflection of their… quality. The lower the quality the more you pay – though of course this is the opposite of the real world. If keywords are not grouped tightly enough the ad content can drift from the intent of the keyword, putting downward pressure on the quality score. As we all know, this results in higher CPC and cost per conversion.

OK, so there are some parallels there. But I probably haven’t convinced you that carrying excess keywords is a problem. Fair enough.

Let me ask you this: do you know what the distribution of conversions is among your keywords? Are each of them contributing equally? Or do they follow something like the Pareto principle (80/20 rule)?

In fact, the distribution is not flat, in many cases. If you check you will find that a large portion of your conversions come from a handful of the keywords.  This can occur even in cases where the account is closely monitored.

So what does this mean for the rest? They are waste! They generate impressions, clicks, and cost – but no sales.

Several months ago I did a one off consult for a client spending close to $80,000 a month on ads generating leads for their sales teams. This was an account that was managed daily, and he had done a pretty solid job. Naturally, he wanted more results so he contacted me to do an audit.

What I found was shocking.

The distribution of conversions among keywords was highly skewed. Check it out for yourself

conversion-distribution-among-keywords

A single keyword drives the lion share of the conversions, while a huge chunk of them are just hanging out by the pool drinking margaritas.

Even worse is when you check out the cost distribution among keywords by their number of conversions.

sum-of-cost-vs-conversions

Summing up the ad spend for keywords with 0 conversions, we get a total monthly ad spend of $11,255. If you’re counting, it’s 15% of the monthly ad spend – about $132,000 a year in waste.

All from excess inventory.

If you’ve found this useful, leave a comment below and share on your favorite social media platform.

Now go forth and check your account.

– Phil

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