Is Your Agency “Profit-Driven”?
It’s a pet peeve of mine when an agency throws the term “profit” around loosely. Many agencies rave about how profitable their services are for their clients, yet make little to no attempt to measure or report on how much profit their services yield for the client. But what makes an agency profit-driven and how do you identify an honest paid search agency?
Many of these agencies report on KPIs that are either solely efficiency or volume-based, including:
- Cost Per Order (CPO/CPA)
- Ad to Sales Ratio (A/S/COS/ERS)
- Return on Ad Spend (ROAS)
These metrics alone are flawed because they don’t account for business expenses outside of channel-related costs like media spend. If you have no cost of goods, no variable overhead expenses, no returns, no pick/pack/ship costs, and no credit processing fees, then maybe relying solely on these metrics is fine for you. However, if your business incurs any of the above, you should instead account for these expenses when managing your SEM channel. (Read more about using profit as your core KPI.)
If Your Agency Doesn’t Measure Profit, They Cannot Maximize Profit
Which raises the question: if your agency isn’t actively measuring and reporting on profit, how can you expect to maximize profit while working with them? Here’s an example of why profit-driven management is so important. This retailers’ agency is currently reporting on either efficiency or sales metrics. Here are their annual SEM KPIs.