white paper How to Run a Test Trial of New B2B Distribution Channels Executive Summary B2B marketers generally focus on performance marketing. They seek paid marketing channels that will help them profitably grow their businesses. To find effective paid marketing channels, most B2B companies will quickly run a test trial with just about any promising paid marketing channel before ploughing in large investment dollars. Yet, it s during this test trial period that most B2B marketers fail. They will often incorrectly set up their test budget, their bid (in PPC channels), and ad creatives, which invalidate the results of their test. This white paper seeks to explain how B2B marketers can effectively step-by-step accurately set up a test trial with a paid PPC marketing channel in order to decide whether a given vendor is effective. This white paper will cover: How much budget to allocate to a PPC test trial How much to bid in PPC channels How to design ad creatives for a test trial This white paper assumes the reader is already an experienced B2B online marketer.
How much test budget to allocate to a test trial? Deciding on a test budget is difficult for B2B marketers. Many B2B enterprise marketers have a cap on their test spend, generally up to $10k-$25k. But, the dilemma that most marketers face is what is the minimum they can allocate for a test and still have an effective test? Unfortunately, picking a test budget isn t as simple as coming up with a number. You need to start with the number of leads you want from your test trial -- not budget. The right question to ask is how many leads do you need to go through your marketing funnel in order to know whether to double down on more leads from that channel? This will vary by advertiser. For example, if you re a Saas company with product pricing at $50 per month, then you may have pretty high conversions to sales from the leads you receive. In contrast, if you are selling a $50k product that has a much longer sales cycle with a small conversion rate, you may need more leads which means a larger test budget and more time to see if your test trial is successful. After conducting his research, Whalley went with LaunchBit again because it was the only vendor that would commit to a cost per click. The other vendors offered only per-impression rates, which implied they didn t have faith in their lists and weren t able to reach the right audience, says Whalley. He also appreciated the low monthly minimum to get started with LaunchBit. The low entry point would make it easy for Kinvey to turn up its budget once it was certain it was reaching the right audience. Let s run the math Say you run Widgets-as-a-service.com. These are your typical numbers: Average sale size: $50 per month Typical conversion rate: 10% from leads to sales Typical conversion time period: 1 month Average customer lifetime: 12 months At the minimum, to prove that you get at least one sale from a given ad channel, you will need at least 10 leads and a 1 month time period to know whether an ad channel is converting. Running the numbers, your average lifetime-value for a given customer is $50 per month * 12 months = $600.
A good rule of thumb is to spend 1/3 to 2/3 of your average lifetime value in acquiring new customers. This means you can spend between 1/3* $600 = $200 and 2/3* $600 = $400 to acquire one customer. If you are a cash-strapped company, you should err closer to the 1/3 mark ratio of customer acquisition spend. If you have raised a lot of money, you should be closer to the 2/3 mark to accelerate your customer acquisition process. For this example, let s assume we spend up to ½ of your average lifetime value in acquiring new customers. You should pay no more than 10% lead to sales conversion rate * ½ * $600 lifetime value = $30 per lead. Since you need at least 10 leads, because only 10% will convert, you must have at least 10 leads. 10 leads * $30 per lead = $300 is the absolute minimum budget we need to test an ad channel. Be careful of small sample sizes Unfortunately, the calculations are not that simple, because these computations assume that average numbers will always apply. However, it is very possible that amongst the 10 leads you collect from a paid channel that none of them convert to sales. Afterall, when only an average of 1 out of 10 will convert to a sale, 1 is not too far off from 0. The sample size just may be too small. This is like saying, if you flip a two-sided coin twice, you would expect heads to show up on average once. But, what if it shows up 0 times? Does that mean the coin is broken if heads doesn t show up? No, your sample size of flips is just too small. The same applies to lead generation. If you have 10 leads and on average get one sale, does this mean an ad channel is bad if you get 0 sales from exactly 10 leads? No, the sample size is not big enough. As a rule of thumb, you should double the number of minimum leads you need to have enough confidence that we ve tested a channel enough. So, in this case, you should get at least 20 leads to see if you are able to get at least one sale from this channel. In this example, you need a test ad budget of 20 leads * $30 per lead = $600 minimum test budget.
How much to bid in a test trial of PPC Channels? Now that you know how much test budget to allocate, you ll need to compute what PPC bid price to start with. For this, you ll need a cost-per-lead (CPL) goal and will need a general idea of your landing page s conversion rate. Let s say that Your CPL goal is $20 Your best landing page converts at 20% (on average 20/100 people who come to your landing page sign up for your offer) This means that you need to send 5 people to your landing page on average before one person signs up. So, $4 per click is roughly what you want to bid. But I want the cheapest leads possible! $4 per click is the maximum you can bid. But what if you want to get an even better price? (as we all do) You could lower your bid. But, then you may sacrifice volume dramatically. The secret that most PPC ad networks don t tell you is that they massively favor campaigns with high click-through-rates. Imagine there are two advertisers: Ad A is bidding a maximum of $0.50 per click, 5% click-through-rate Ad B is bidding a maximum of $1 per click but 1% click-through-rate. Suppose there are 100 ad impressions available. Who will the PPC ad network favor? Ad A $1 max bid price * 1% CTR * 100 ad impressions = $1 Ad B $0.50 max bid price * 5% CTR * 100 ad impressions = $2.50 Even though Ad B is bidding less, Ad B will actually generate more money for the ad network and their publishers. In fact, a PPC ad network can even give Ad B a discount -- as much as $0.30 per click in this case. In other words, it s more strategic to focus on improving your click-through-rate over your bidding strategy to get lower prices in a PPC ad network to lower your overall CPL.
How to test ad creatives in a test trial? In order to get the highest click-through-rates, you will need to test and change lots of ad creatives. But, how many creatives are enough to test? Most B2B marketers are too busy managing tons of different activities. Moreover, no one has time to come up with a lot of creatives just to do a test trial. What if the test doesn t work? Then the work would be a total waste. Yet, you need to test lots of offers, even in a test trial, to get an accurate representation of what your click-through-rate would be under optimal conditions, which in turn drives the price of your ads. Here are 2 rules for testing a range of creatives. 1) Use a handful of offers It is worth your while to come up with a handful of offers that you can use to test every new paid marketing channel. For example, perhaps it s 5 different ebooks. If creating content takes too long, try offering hot products or services as incentives, such as free t-shirts or gifts. Whatever your offer, make sure you have a handful to test. 2) Your ad design does not matter One reason coming up with multiple creatives is daunting is that most marketers are perfectionists about their creatives and will need time with a designer, and it can take months to get around to testing a channel. Don t go down this path. It turns out that unless your target market is designers, you should not sweat creatives. In fact, design matters less than specificity of an offer. For example, you are much better off writing in text (even if on a banner ad itself) what your offer is as opposed to showing an aesthetically pleasing graphical design. Your audience wants to know what you are advertising make it easy for them to figure out, and be specific. This does not require a designer. If you follow these two rules, developing creatives to test new paid marketing channels should be straightforward. Wrapping it all up The next time you decide to run a test trial of a PPC ad channel, remember to start with the number of leads you will need to have enough information about whether to continue with a given ad vendor. Avoid starting with arbitrary test budget numbers. Lastly, test lots of creatives to improve your click-through-rate to get an accurate picture of how the channel actually performs in optimal state.