Choosing the Right Strategy for your Online Business: Pay for Inclusion vs Pay per Click

By Richard Zwicky
Posted Monday, August 2, 2004

Back in the old days of the Internet - in 1993, - there were 284 locations on the entire World Wide Web. According to Bill Clinton, only 8 of them ended in .com or .net when he was sworn into office. As of January 1, 2003, there were 171,000,000 domain hosts in use. In 1995, the largest search engine database was Altavista, and it had most of the Internet categorized. Today Google and FASTsearch own the largest databases. Yet neither one of them has even 10% of the Internet covered. It's estimated that more than 8,000,000 web pages are added to the Internet every day. None of the search engines are able to keep up to that pace. So how will your website stand out? How will it acquire the traffic it needs to succeed? There are many ways to approach the issue of marketing an online business, but for the sake of this article, we'll concern ourselves solely with online tools, and ways to expedite success. In that vein, we'll concern ourselves with Pay for Inclusion and Pay for Placement (or Pay per Click) advertising.

Some engines, such as AltaVista, Inktomi, Looksmart and FAST, use a pay for inclusion model. What this means is that to be guaranteed to be found within that specific search engine index, the website operator must pay a fee to be listed. It's similar to the fee a business pays for a Yellow Pages listing. These fees vary from monthly to annual. Looksmart charges a listing fee, plus a fee of $0.15 per clickthrough.

Engaging a Pay-for-Inclusion service does not come with any placement guarantees. If your website is not properly optimized, but you paid an inclusion fee, it is guaranteed to be indexed and listed somewhere within that search engine. If you want to ensure success with a Pay-for-Inclusion search engine, then your website must still be optimized. Without proper optimization, which includes an analysis from the perspective of all the factors that the search engines look for, a pay for inclusion service will not deliver the desired benefits to the website operator.

When properly matched with a comprehensive Search Engine Optimization regimen, a Pay for Inclusion program will result in powerful results: Qualified Traffic, Customers, and Relevant Traffic.

Pay per Click advertising is the process by which a web site operator can arrange for a website to be placed in a pre-defined position within certain search engines, such as Overture.

Search Engine Placement is always a Pay-Per-Click solution. While advertising websites are only permitted to buy advertising in search queries that are relevant to their content, they are not sorted by relevance but rather purely based on bid value.

Pay per click services allow advertisers to bid for each visitor directed through to their web site, based upon the number of clicks the ad receives. Pay per Click search engine placement should be realistically viewed for what it is - an online auction. Advertisers bid against each other for a fixed position within a list of search results. The advertiser who bids the most is given the top spot in the list. Each advertiser bids according to their budget, and has to know his or her Return On Investment (ROI) to determine how much money should be spent on acquiring new customers.

How Do I Know Which Strategy Is Right For My Website?

For those advertisers where the ROI is sensible or worthwhile, pay per click search engines are valuable customer acquisition tools. But is it right for you? While it can be expensive, here's a way for you to easily determine the ROI for your online business, and determine if it is the right choice for you. Take out a sheet of paper, and at the top of the sheet mark down the average price of the goods you sell - we'll use $100.00 for the purpose of the example. From that number, make some simple and basic calculations, outlined here:

$100.00 Sale Amount

-$ 50.00 Cost of Goods

-$ 5.00 Transaction Cost (bank charges, credit card)

-$ 8.50 Shipping Fees (This assumes you're delivering a product, it needs a box, label, and has a delivery cost.

-$ 10.00 Customer support costs - time on phone, email, etc... supporting and processing the transaction. What's 1 hour of your time worth?

$ 26.50 = Margin

Assuming this margin is correct for your website, is a Pay per Click campaign right for you? You'll need to look at your stats to judge this properly. You need to determine how many of your visitors are converting into buyers. IF your website has a 4% conversion rate, and your category is moderately competitive, you will probably need to budget at least $1.00 per click to get spot #3. Spot #3 is important because more often than not it's the top 3 spots per page of search engine results that are reserved for Pay per Click advertisers.

Assuming your website gets into the top three spots, here's how the math works if you get 100 clicks in a month. Since it's all percentage based, the same holds true if you get 25 clicks or 10,000 clicks.

100 clicks @ $1.00 per click = $100.00 cost 4% conversion = 4 sales = 4x $26.50 (margin on sale) = $106.00 Profit = $ 6.00

So, if the above were true, and IF the pay per click advertisement sent you 100 visitors per month, you would make only $6.00. Would you make much less having spot #4 instead of spot #3 ? If it meant one less sale a month, that would be worth it. You would make $70.00 more by selling less! Does spot #3 get much more traffic than relevant results in spots 4 through 10? Not at all for spot # 4, 5, 6, and only a little bit more for spot #'s 7-10. Remember, people usually look at the title or site description to see if it is relevant. Pay per Click is worth the money if your website is not found under any relevant queries in the top 20, but its value drops quickly if a website is found easily in the free listings within the search engines.

Is Pay for Inclusion Less Expensive?

If we use the same calculation as above, and your website had 4 sales from a pay for inclusion engine where you paid $39.00 per year, or $3.25 / month, your profit would have been $103.25.

What About The Cost Of Search Engine Optimization?

Search engine optimization does not have to be expensive. You can do the work yourself, but you need to ensure that it makes sense to do so. By this I mean, is doing it yourself a cost efficient, business proposition? Any time that you as an individual put into search engine optimization is time that you take away from business fundamentals and essentials. It's time away from customer support, content creation, service, administration, product research, other marketing, etc... What is that time worth? It's got to be part of the ROI calculation too. More and more people are choosing to outsource this work. It's estimated that 70% of online businesses will outsource non-core operations this year. It only makes sense. It's smart business to focus on what you know and do well and to hire others to support you in the other areas. Not many smart businessmen write their own contracts - they get their lawyer to do it. They want to ensure it's done right. Doing it right in the first place saves money in the long run. Outsourcing means getting someone else to do the work for you, properly. It does not mean getting someone to tell you what to do, or how to do things.

What's Right For Your Website?

In the long run, a website operator that has a well optimized website will beat out a non-optimized website that concentrates on Pay per Click advertising for customer acquisition every day of the year. He may make fewer sales in a year, but he will make more profit from each sale. If the website is properly optimized, it will enjoy better placement in more search engines. This means it will survive, and prosper in the long run.

About The Author
Richard Zwicky is a founder and the CEO of Metamend Software, a Victoria B.C. based firm whose cutting edge Search Engine Optimization software has been recognized around the world as a leader in its field. Employing a staff of 10, the firm's business comes from around the world, with clients from every continent. Most recently the company was recognized for their geo-locational, or GIS technology, which correlates online businesses with their physical locations.
articles@metamend.com