We’ve noticed that many SaaS companies make changes to their PPC campaigns too soon, and without ever having established a baseline to measure performance.
They’ll wait a period of time — a day, a week, or sometimes a few hours — and say it’s not working because they’re not getting enough clicks, or the clicks are too expensive, or they’re not the right people.
Then they’ll pause the campaign, or reduce the budget, or increase the budget, or start doing something completely different. They’ll change their carefully laid plans in the name of optimization, but it’s not actually optimization because they’re reacting instead of responding.
Based on our experiences working with 40+ SaaS companies, there are a few reasons we think this happens:
- Most of them don’t have a process for establishing a baseline to compare changes to.
- Having a baseline was thought to be implied or assumed, but never asked for.
- There’s a fear element associated because once there is a benchmark then the person in charge is on the hook for maintaining or improving it.
But when they don’t have a baseline, the marketer, CFO, and founder are forced to pit their opinions against each other. They may say, “but I think it should be lower”, or “That’s a crazy CPC!” And ultimately it leads to making decisions based on gut instincts instead of data.
In this article we’ll discuss:
- How to establish a baseline to measure PPC performance
- The problems with overly narrow targeting and choosing the wrong conversion goals
- Our 5 areas of focus when optimizing PPC campaigns for our clients
We help B2B SaaS companies grow through paid search ads, paid social ads, and SEO. If you’d like to learn more about working with us, schedule a Free SaaS Scale Session.
How to Establish a Baseline to Measure PPC Performance
When we begin working with a SaaS business on PPC, we start with determining a benchmark for measuring performance. One way to do this is to come up with a target CPC based on average customer lifetime value (LTV) and the number of closed deals you would like to get per month from paid ads.
To get to your target CPC, you’ll need to divide your total ad budget by the number of clicks you need to meet your target goal for closed deals per month.
- Target CPC = Total Ad Budget / Number of Clicks Per Month Needed
Let’s say your average LTV is $5,000, and you’d be happy closing 2 deals per month from paid ads. If you want to find your target CPC, first you need to figure out your total ad budget and the total number of clicks needed per month to reach your goal.
Calculating Total Ad Budget
A simple formula for total ad budget is:
- Total Ad Budget = Target Number of Closed Deals Per Month x Target CAC
With an average LTV of $5,000, you might decide that based on your overheads your target CAC (the amount you’re willing to pay for a new customer) is $2,000. Using the formula above to get your total ad budget, you’d multiply:
- 2 (Target Closed Deals Per Month) x $2,000 (Target CAC) = $4,000 Total Ad Budget
Now you have one of the two metrics needed to calculate your target CPC. The next metric you need is the number of clicks per month it will take to meet your target goal for closed deals.
Calculating Number of Clicks Needed
The formula for number of clicks needed is:
- Clicks Needed = Demos Per Month Needed / Visitor to Demo Conversion Rate
Continuing with our example, let’s say your site visitor to demo conversion rate is also 5%. That’s your denominator for getting to your clicks needed. You still need to calculate the number of demos per month you need.
To figure this out, you’d simply divide your target number of closed deals (in this case 2) by your demo conversion rate. If you have a demo conversion rate of 10%, the result would be:
- 2 (Closed Deals Per Month) / 10% (Conversion Rate) = 20 Demos Needed Per Month
Then, your clicks needed would be:
- 20 (Demos Needed Per Month) / 5% (Visitor to Demo Conversion Rate) = 400 Clicks Needed
Calculating Your Baseline Target CPC
With your total ad budget and number of clicks needed calculated, you’d simply plug them in to get your target CPC:
- $4,000 (Total Ad Budget) / 400 (Clicks Needed) = $10 Target CPC
Then, with this benchmark in place, you can make informed optimizations throughout campaigns, and avoid playing a guessing game. Below we’ll walk through our optimization process, but first we want to discuss two other common mistakes that companies make in the campaign setup phase.
Note: See our article on SaaS marketing budgets to learn more about calculating LTV.
Reasons Why SaaS PPC Campaigns Underperform
1. Targeting Too Narrowly
The first mistake we see is that companies will set up their targeting too narrowly.
The thinking is: Why would we target anyone but the people we really want?
So, for example, they’ll decide to target CMOs at companies of 1,000+ employees. The problem here is that supply for that audience is low, demand is high, and costs per click are therefore going to be higher.
The other problem with overly narrow targeting is that you aren’t aligning your incentives with the incentives of the ad platform. Because ad platforms make money on serving more people ads, they charge more when you choose to only target a small subset of people. If the platform can’t give you an ample number of impressions, you aren’t a good advertiser for them and they’ll jack up their prices for you.
Ultimately you end up getting minimal impressions of your ad (sometimes none at all) for a high price.
The way to remedy this is to expand your target audience, even if it includes people who aren’t the absolute hottest prospects, so that you can strike a balance to access the right people while lowering your cost per impression and click.
2. Optimizing for Bottom of the Funnel Conversions Too Early
The second mistake is that they’ll start out with optimizing their campaigns only for the thing they want most — a demo or a trial.
The problem here is that if you do this before the platform has collected enough data, you don’t give it enough time to learn what a good and a bad click is. So the people who the platform serves your ads to will be less consistent in lead quality, and at the same time you’re paying more for those clicks because you’ve optimized for a direct conversion.
Instead, what you want to do is:
- Optimize for engagement in the beginning (clicks to a blog, views of a video, and higher funnel conversions such as gated content downloads).
- Give the platform time to learn which users are a good fit (or a poor fit) based on their behavior when they click on your ads.
- Begin working on campaigns with conversion goals of a demo or trial.
This way when you are paying a higher price for those clicks, the platform is more likely to send you better quality prospects.
The PPC Optimization Process We Do with Our B2B SaaS Clients
Once you’ve set up your baseline to measure performance properly, target audiences that aren’t too narrow, and reach the right conversion goals at the right stages, the following are the top priorities you should focus on for optimization.
Increase CTR First Before Pursuing Other Improvements
We see this as the most important part of the optimization process and the one you should focus on first.
The reason is that click through rate (CTR) is the metric that is fundamentally the most aligned with the incentives of the ad platform. Unilaterally, what platforms look at is this: for every 100 people who are looking at an ad, how many people are clicking it?
Unless you’ve optimized your ads to reach an adequate CTR (>1% on Linkedin, >1% on Facebook, and 3-5% on Google Ads), the rest of what you do for optimization is going to be an uphill battle. Platforms will give your ads a low quality score, and you’ll end up with fewer impressions and higher costs.
The way you get to a high CTR is to combine great targeting with great messaging. If ad platforms see that you’re effective at targeting the right audience and serving them messages that they seem to like, they’ll reward you so that you continue advertising with them.
They’ll give you higher quality impressions and cheaper clicks — which in turn makes conversions cheaper as well. This is the best route to increasing your return on ad spend (ROAS).
Create New Ads Every Month to Prevent Ad Fatigue
If you’re showing the same ads to the same audiences every month, your ads become less effective over time because people develop a blindness to them.
As a consequence, ad platforms will not only serve your ads less, they’ll drive up your costs, too. And you’re likely to begin annoying potential customers who may otherwise be interested in your SaaS product.
Our process for avoiding ad fatigue is to create new ads every month. How do we do this?
We use a framework called the 4 Forces Model:
We work with our client to come up with the three biggest fears, frustrations, wants, and aspirations of their target customers. This gives us twelve different messaging angles to test, and we’ll create an ad for each one.
You can launch them all at the same time or run them in sets. The idea is to continue to iterate the ads based on your learnings from their performance. You can test different headlines, ad copy, CTAs, and creative — all of which help you prevent ad fatigue and simultaneously see which ads perform best.
Reduce Wasted Ad Spend by Adding Negative Keywords and Audience Exclusions
Only a small portion of clients and prospects we speak with are familiar with negative keywords and audience exclusions, but these criteria are essential for PPC optimization.
Negative keywords are keywords that you tell Google you do not want your ad to show up for. For example, if your SaaS is a project management software specifically for enterprise companies, you might choose to include “small business” as a negative keyword. This way Google won’t show your ads when someone searches for “small business project management software” — which allows you to avoid paying for clicks from people you know to be a poor fit.
Audience exclusions serve a similar function on Facebook and other social media channels, except instead of excluding specific keywords, you can exclude subsets of your target audiences that you determine to be a poor fit.
There are two ways to figure out identifying the right negative keywords and audience exclusions:
- Early on in your campaigns: Brainstorm the types of things people would search for related to your product that would make them a poor fit. For example, if you sell a high-end product, you might choose to exclude words like “free,” “cheap,” or “discount.”
- Later when you have sufficient data: View the clicks from people who are not converting or engaging meaningfully with your ads (eg. bouncing immediately from your landing pages), and look for commonalities in those audiences or the keywords they were using. If you see that a particular audience subset or keyword phrase is commonly resulting in poorly fit clicks, exclude them from your campaigns.
Allocate More Budget to Top and Middle of Funnel in Highly Competitive Markets
If you’re in a market with low competition, it behooves you to focus your PPC advertising on prospects towards the bottom of the funnel. Lower competition means lower costs and a higher share of impressions for the audiences and keywords who are closest to being purchase ready.
But if you’re in a competitive market, trying to focus all your PPC advertising in the bottom of the sales funnel forces you to compete with bigger fish that have more money to throw at ads — which can get very expensive, very fast.
In this case, a better approach is to shift more budget to top and middle of funnel audiences, which will lower your blended customer acquisition cost because those clicks will be cheaper. This allows you to capture attention and permission from prospects higher in the funnel, and by reaching them earlier in the process, they’re less likely to be brand loyal to your competitors, and more likely to be loyal to you.
Note: Learn more about this topic in our article on connecting content marketing to the buying process.
In Moderate or Lower Competition Markets, Outbid Competitors for Highly Engaged Users (RSLA, In-Market, Remarketing)
Specifically with B2B software, when companies choose to adapt a new product into their operation, they tend to be locked out of that market for a longer period of time compared to consumers. Due to the effort it takes to integrate a new tool into their system and roll it out across their teams, it’s a much heavier lift for them to switch services.
This makes the stakes of capturing prospects in the buying phase that much more critical. So in markets with moderate or low competition, we recommend outbidding competitors for highly engaged users in the bottom of the funnel.
Let’s say you have an average target CPC of $5. With this approach, you may choose to pay $15 for these specific clicks, even if impressions are low, for people at the tipping point because that’s your opportunity to lock them out of the market.
In practice, we will increase budgets for:
- Remarketing Lists for Search Ads (RSLA’s): People who have been viewing your competitors’ sites and searching for high-intent search terms.
- Remarketing Audiences: People who have already engaged with you, looked at your product and use case pages or downloaded a lead magnet, and just haven’t signed up for a trial or demo yet.
- In-Market Audiences: Prospects that they have deemed are “in the market,” looking for terms that indicate that they’re preparing to make a buying decision, and have been doing so within the last two weeks.
Note: Learn more about in-market audiences in our article on Google ads for SaaS.
Of the B2B SaaS businesses that we work with, one of their greatest needs when it comes to digital marketing is to move fast. So while there are many elements of PPC ad campaigns that you can optimize, having limited time means you have to make decisions about where to focus and take action.
We prioritize our optimization on the 5 areas listed above because we’ve found them to be the most impactful. If you’ve established a baseline for measuring performance, and gotten your targeting and conversion goals right, implementing our optimization process should help improve the results of your campaigns.
If you’d like to learn more about how we help B2B SaaS companies grow through paid media and SEO, schedule a Free SaaS Scale Session.