The real value of paid search and tracking the consumer journey

Image source: Getty/Gallo Images.

The reason for this is because these industries track the lifetime value of a customer and not just the initial sale value. Looking at profitability from a different angle allows marketers to see the true value of a ‘new client’.

P-Factor or Profitability Factor

Car Insurance as an example is one of the most expensive keywords globally and can cost advertisers upwards of R650 per click depending on how much they’re willing to pay to compete against other insurance brands.

This is an astronomical amount of money – if brands wanted to truly compete in this space, they could be spending upwards of R150,000+ a day on Paid Search alone.

So how can it be possible that insurance brands invest 30% plus of their entire marketing budget on this channel? Simply put, it’s what companies call a P-Factor or Profitability Factor. This is a simple profitability equation that allows brands to measure the value of a sale over time. Let’s use car insurance as an example – If I’m insurance company A and I spend R5,000 on Google Ads today, I’ll most likely generate quite a few visitors to my website who will either complete a quote online or want to talk to a sales advisor.

Tracking the customer

As a result of the quotes generated, I may sign up a new client who would hypothetically insure their vehicle at a monthly premium of R1,000. At a glance, you might say that this channel is loss-making as the amount of adspend far outweighs the sale value, but the inverse is actually true.

Car insurance is a service that consumers sign up for on a monthly basis which means that as Insurer A, the company will be generating revenue from the initial sale over a long period of time. This is where P-Factor comes in. This equation helps us understand how long our new customer will need to stay insured with us before we cover the initial R5K adspend.

Adspend divided by initial sales value = P-Factor. So, R5,000/R1,000 = a P-Factor of 5. This means that our new client will need to stay insured with the brand for five months before it “breaks even” on advertising spend. If we then incorporate the fact that the average insured person stays with their insurer for 12–18 months, the profitability conversation very quickly changes to a positive one. In this example, the company would be making money from our new client for anything between 7–13 months.

Every industry is, of course, different with their own unique challenges but the learning for marketers has to be that the future for brands is not only tracking a customer’s journey online until the sale is complete but tracking the customer for the entire time that they’re associated with your brand.