Thinking of setting up a business providing PPC campaign management services?
Let’s presume you’ve got your PPC chops, have built up some practical experience and are now looking to make money out of your skills.
Let’s take a look at how to go about it.
Size Of The Industry
SEM spending is estimated to be worth $18 billion by 2011.
Most activity, in terms of spend, in the professional search marketing space is in PPC, as opposed to SEO. The PPC concept is easy to grasp, implement and measure, and as more and more advertising spending shifts online, it will undoubtedly find it’s way into PPC.
Is Running A Business Really What You Want To Do?
It seems a strange question, but there is a big difference between knowing how to do PPC and setting up a business to sell that service to clients.
When you start a business, you typically have to perform most of the varied business functions yourself. That means writing proposals, attending conferences, pitching presentations, cold-calling, selling and networking. All of these activities cost time and money and none of it is guaranteed to pay off. Once you do land work, you need to run the campaigns whilst searching for the next customer.
That’s the reality of most service-based start-ups. Your hourly wage must reflect that you are likely going to spend 50% of your time working on prospecting, learning, networking, and dealing with administrative issues. Ask yourself if you’d like to “do it all”, or would you be happier selling your skills to a business that is already established, so you can focus exclusively on PPC?
Most inhouse PPC managers with three years experience earn between $30-70K. If you have five or more years experience, that figure shifts up a gear, typically ranging from 50K to, in some cases, $200K (rare – but some people are doing that, and above).
When you’re doing your break even calculations – more on this shortly – keep these figures in mind. The effort involved in running your own business must pay off in relation to what you can earn somewhere else, unless monetary reward is not your sole aim. And an in-house job can gain you experience, help you build your network, and help gain exposure for your expertise.
Cash Flow & Break Even Point
If you’ve decided that your suited to running your own business, the first thing to do is run a few numbers.
One of the most important aspects of start-up bsuiness is cash flow.
Do you have sufficient cash reserves to live on while you’re waiting for your first client to pay up? Cash flow can kill a small business, even those businesses which have a a lot of prospective work in the pipeline. The bills will come in, and your clients may not have paid you yet. Without access to a line of credit or savings, cash flow issues can take you out very quickly. It’s a good rule of thumb to assume you’ll make a loss, or break even, in the first year, so make sure your finances can cope.
Next, you need a break-even analysis. A break-even analysis shows you the amount of revenue you’ll need to bring in to cover your expenses, before you make a profit.
- What are your fixed costs? i.e rent, insurance,power and other set expenses and overheads.
- What is your estimated variable costs? i.e. costs that will vary due to volume sold, such as staffing numbers
- What is you the sales revenue required to cover all your costs?
A simple equation like this will show you how many sales you need to make in order to run your business successfully. It will also give you an idea of what you need to charge for your services.
It should only take you a few hours to make the numbers work, or to see that they don’t stack up. If they do work, then you can go ahead and form a business plan. If you can’t make the numbers work, then you’ve saved yourself a lot of time, money and effort creating a business that can’t possibly survive.
It doesn’t sound like much fun, I know, but business really does come down to a set of numbers. You either sell something for more than it costs to produce, or you don’t.
Try searching for PPC management services. As you can see, the world isn’t short of providers!
In an industry with such a low barrier to entry, how will you stand out from all the rest? You’ll need to give prospective clients a good reason why your service is better than the others on offer. How do you intend to match or better the credentials of established operators? How can you differentiate your service? Can you do it by geography? Price? Service levels? Performance? Focus on a business vertical / niche where you have established expertise?
Think about how you can pitch your services so they demonstrate real value to a client. If they can do PPC in-house, they will – so you can’t just sell the benefits of PPC in general- , you need to give them great reasons to outsource to you. What advantage do you provide over doing the work inhouse?
Pricing Your Services
One strategy often used by those starting out is to undercut everyone else. Whilst it can be useful to get a cash flow going, there are problems with this approach.
Once you hook someone into a low price, they’ll come to expect it. And then they may ask for discounts too! A better way is to give someone a low price, but make sure they know this is a discounted price on your usual service. Why would you give someone a low price? This can be a useful tactic for building good references, recommendations and a client history. The advantage to you is that you gain marketing collateral and professional experience, and get paid.
Long-term under pricing isn’t a great strategy unless, like WalMart, you can do a lot of volume with low overhead by dictating the terms of the supply chain. But you are not WalMart (or Google), and you don’t have that pricing power. This creates problems in itself, especially for the start-up PPC business, as you need a management structure and personnel do deal with high volumes. If you can do high volumes at good prices, great! Ask yourself how you’ll manage to scale quickly – in terms of taking on extra staff and moving to bigger premises- if this happens. But beware that some of the easiest set and forget PPC models have a high churn rate, and Google has done beta tests that aim to service the low end of the market via automated technologies.
You also can’t price too far above the market, unless you’re bringing something truly unique to the market that clients can’t get elsewhere – additional exposure on other key properties, press coverage, organic search traffic, a strong focus on improving conversion rates, a business model where you absorb most the risk but keep a bigger share of the profits, etc.
Take a long hard look at the existing PPC service market and try to imagine what is not there. Could reporting be better? Could you add value by focusing on achieving increased conversion i.e. getting involved more deeply with a clients business strategy? Could you specialize in one particular market, like say travel, and become very well known in that market segment?
Often, larger PPC management campaigns are based on a percentage client spend, with some form of retainer for reporting. If you do get paid a percent of spend, it helps to focus where the click volume is decent and clicks are expensive. Legal and hotels are typically far more lucrative than a local shoe repair shop. 😉
Smaller campaigns tend to be a fixed price for establishment, with on-going retainers. When deciding on how to price, look at what your competition are doing, and consult industry research and surveys. While recurring income sounds compelling (we always add up the income before thinking of the costs), if you under-price the cost of maintaining the relationship (as well as the PPC account) then that passive income can easily start flowing in the wrong direction, and end up as a passive expense. A well executed one off deal can be far more lucrative than an under-priced ongoing relationship. If a relationship consistently loses money consider firing the client and spending more time improving the performance on your best accounts.
What are some of the business lessons you learned the hard way? If you were to start a PPC consulting business from scratch today what would you do differently than you did when you first started?