Unless…

That is, unless you’re selling a commodity. But even then, the data is unlikely to be helpful. There are two questions every online advertiser needs to answer:

1. Are we making our money back and then some?
2. Whether we are or not, can we improve the results?

If the answers are no and no, then quit advertising. Otherwise, keep it up. It’s as simple as that. Yes, knowing that your competitor has a better conversion rate might tell you that there is room for improvement, but chances are you already knew that anyway since most advertisers come nowhere close to reaching their online potential.

If you are not selling a commodity then knowing how your competitors are doing doesn’t help you at all. Let’s take Apple and Zune, for example. You might say mp3 players are commodities since they all do the same thing, but they’re a far cry from a true commodity like corn or pork bellies, if only because of brand perceptions.

Let’s take a prospective customer for an mp3 player and examine just a sampling of the factors that would influence a conversion, or a sale.

1. Brand perception
2. Cost
3. Offline marketing (promotions, etc.)

This all happens before the customer to be even gets online. Once they get online there are all the factors and dynamics of the actual ad:

4. Ad quality
5. Ad placement
6. Keyword choice

Then there’s what the user finds at the end of the rainbow:

7. Landing page or homepage?
8. Quality of webpage design
9. Quality of website navigation
10. Every other factor of the website that might have an influence, however slight, on the user’s actions

By the time the user ends up making a purchase, who knows exactly what it was that made them purchase one mp3 player instead of another. Apple’s ads might do better because they’re experts in crafting marketing messages, or they might do poorly because anyone who would consider an iPod would just go straight to Apple’s website instead of searching for “mp3 players” online. Imagine how much more complicated it becomes if we ask what the standard conversion rate is for the electronics industry?

Again, the only questions that really matter are whether you’re making your money back and then some, and whether there is room for improvement. And there is always room for improvement.

PPC is simply that, pay-per-click. You sign your website up on a search engine or a larger website and pay for every time someone clicks to your website. You do not pay if someone just sees your ad, they must click on it and load your website on their computer. It also is different from a PPA, Pay Per Aquisition, where you only pay per sale.

Pay per click is an effective means of advertising especially if you have a very high conversion ratio of visitors to sales or leads on your website. If you have a low conversion ratio it will be largely an expense with a negative ROI. Over the last few years as PPC has become more and more popular, especially on Google (Adwords) and Yahoo (Overture), it has become more and more expensive. The price you pay per click depends on your industry, namely how many of your competitors are competing for the keywords and how big your profit margins are. For example someone selling a t-shirt online will be willing to pay less per website visitor than someone selling homes. Although this is a popular form of advertising and does work well for some more website owners are turning to SEO to generate leads and sales and ditching PPC because of its recent exploding popularity.

So what are the drawbacks of SEM? First of all, I hesitate to say there are any. If SEM works for you, then use it. If it doesn’t, then don’t. You don’t have to decide whether SEO is better than SEM, you just need to figure out if SEM works for you. But that said, here are some ways to compare the two if that’s what you’re looking for.

1. SEM doesn’t get as many clicks. Organic or natural search results get more clicks than pay per click ads, on average. Generally you’re looking at 30-40% of the clicks going to PPC ads, and 60-70% going to organic search engine results. However, that ratio may be different for the specific keywords you want to rank for.

2. SEM is not free. SEM not only costs money but takes time. Some people think that it’s easy to set up a PPC campaign and then you just let it go. On the contrary, even with a relatively small company that has modest SEM needs it’s easy to spend 10-20 hours per week managing a PPC campaign for maxium effectiveness.

3. You pay to play. With SEM if you’re not paying, you’re not getting anything. If you get 100 clicks, you’ll pay for 100 clicks. If you get 200 clicks, you’ll pay twice as much. With SEO you pay the same amount whether you get 100 clicks or 1,000. However, this drawback to SEM is also one of its advantages. While you only get results when you pay for them, you only pay for the results you get.

I would recommend to almost all clients that they do both SEO and SEM. If they both provide positive results, why not? It doesn’t have to be a choice between one or the other. You can run SEO and SEM campaigns simultaneously, and in fact there are some benefits and synergies to running both types of campaigns at the same time in terms of identifying valuable keywords and spotting trends.