Why increasing your AdWords spend doesn't always lead to more sales


Recently, I was approached by two companies that were facing stiff declines in web sales. In both cases, the companies' responses were to dramatically increase AdWords spend, sort of like of like mashing down on your car accelerator to get up to highway speed.

Unfortunately, all that happened was that both companies increased cost of sales pretty substantially without a commensurate increase in sales. One company noted a sharp increase in unqualified leads, people who would never buy their product because they did not fit the necessary medical criteria.

So, how does this happen? AdWords bills itself as a targeted marketing tool. You bid on the keywords (search terms) where you want your ads to appear, and you write the ads that will attract the people using those keywords. In theory, you should always get qualified customers.

However, in well optimized ad campaigns, you may already be reaching almost all of your addressable market as illustrated by the overlap of magenta on yellow in the diagram. Your addressable market is the people who want your product or service and are qualified to purchase it. For instance, you may be advertising a hospital within a given geographical radius and have covered all the specialities that attract its patients. In these cases, the only way to spend more on AdWords is to do things like broaden the geographic radius or write the ads more broadly, eliminating key qualifying phrases that will cause some not to click. In effect, you're broadening the reach of your ads to people who will never be your customers and paying for them to come to your site without hope of ever getting them to pay you back. This is the area shaded in green in the diagram, and it can be as large as your ad budget will allow.

So, what should companies with suddenly declining sales do? First off, avoid the knee jerk reaction of immediately spending more on advertising, and ask yourself these questions:

  • Has a new competitor entered your space who is outspending you to reach the same audience with the same benefits? In this case, an increase in ad spend may be warranted, if it still allows you to make money. However, it's also worth reconsidering your landing page. Is it relevant to the keywords your bidding on and the promises in your ads? Google will show ads backed by more relevant landing pages higher than ads with less relevant landing pages, often in spite of higher bids per click for the less relevant landing page ads. New competitor entry may also be an opportunity to reconsider your messaging to point out the more distinctive features of your product.
  • Has a new competitor entered offering a different value proposition? In this case, the market may be shifting away from the benefits you address. Here, increasing advertising spend by itself won't help. You need to consider messaging and product development.
  • Is there some external event such as a recession that is suppressing demand? Again, purely increasing advertising spend is likely not to help. Some of that money might be better put toward couponing strategies or other approaches that address the root cause in drop in demand.

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