Estimates for search spending can vary, depending on the source. Research firms and trade associations use different methodologies for conducting the research that yields their budget forecasts.

For instance, the search marketing spend in North America was reported at $5.75 billion last year by the Search Engine Marketing Professional Organization (SEMPO) and forecast to reach $7.19 billion in 2006.

That estimate may be conservative, as TNS Media Intelligence projected total online spending at $20 billion by the end of 2006 with half of that going to search. The $20 billion figure gives online advertising a 12 percent piece of the $161 billion total ad-spend pie.

Estimating Your Search Marketing Budget

There are a number of ways to establish your budget. You can base it on historical industry data, on a market share basis or on a percentage of sales.

Considering that 87 percent of commercial search engine traffic is organic (natural listings), and the balance of traffic is paid (sponsored listings); it makes a lot of sense to allocate a fair portion of your search marketing budget for organic search engine optimization (SEO).

Multiple links in the search engine results pages (SERPs) create authority and trust, while custom landing pages convert beyond the click. Organic SEO campaigns provide conversion rates three times those of pay-per-click (PPC) campaigns and can last indefinitely when maintained properly. PPC campaigns give you immediate exposure in the SERPs, can be controlled to fit your budget and can be optimized quickly for better performance. A combination of SEO and PPC links will give you brand lift and increased conversions.

There are 175+ million search engine users in the U.S. today who are conducting approximately 5.5 billion searches each month, and 90 percent of them are going to Web sites from the first three search result pages. With combined organic and paid search campaigns, you maximize profits from the increased traffic and conversions, achieving branding with your search listings at the same time.

Retailers Reveal Marketing Budget Guidelines

The latest Internet Retailer Survey shows the following summary for percentage of sales allocated to marketing. As you can see, most retailers spend between 6 and 10 percent of sales on marketing. While the data refers only to retailers, we believe it generalizes across industries as a fairly good benchmark guide.

  • 4.1% of all companies spend over 25% of sales to marketing
  • 7.7% spend less than 1%
  • 18% spend between 2% and 3%
  • 19.9% spend between 4% and 5%
  • 28.1% spend between 6% and 10%
  • 21.9% spend between 11% and 25%

Search Wins Hearts and Minds

JupiterResearch reports continued growth in the size and complexity of search campaigns with nearly 24 percent of search marketers spending over $500,000 on SEM campaigns in 2005 versus 12 percent in 2004. This year, 66 percent of marketers plan to increase search spending.

The same study reported marketers are spending larger budgets and generating more revenues. The share of search marketers with annual revenues of $15 million or more has risen from 25 percent in 2005 to 37 percent in 2006.

What does this tell you about search marketing? We believe it means that search has become first and foremost in the hearts and minds of marketers and with good reason: every action can be tracked at very granular levels.

Marketers are shifting money from other channels to search because it is incredibly effective for both conversions and return on investment. Savvy marketers will use both organic SEO and paid search advertising to achieve superior branding and meet direct response goals.

Discuss this article in the Small Business Ideas forum.

August 18, 2006

Paul J. Bruemmer has provided search engine marketing expertise and consulting services to prominent American businesses since 1995. As Director of Search Marketing at Red Door Interactive, he is responsible for strategizing and implementing search engine marketing activities within Red Door's Internet Presence Management (IPM) services.

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