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Does Paid Search or SEO Impact EPS More? – Doug Bell // Searchmetrics

Episode Overview: Examining how SEO impacts earnings per share requires delving into paid search to obtain a big picture view of the intricate relationship between EPS and SEO. Join host Ben as he continues SEO and EPS week speaking with Searchmetrics’ CMO Doug Bell, SEO Strategist and Advisor Jordan Koene and Marketing Operations Manager Melanie Schott about their SEO/EPS study. As they review their study, they take a deeper look at how paid visibility impacts EPS.

Summary

  • The portion of the study that examines paid visibility and its impact on EPS uses data pulled from the Searchmetrics suite researching 62 Fortune 500 companies from 2014-2019.
  • Data revealed as paid visibility increases, the average EPS is decreasing. 
  • The factors influencing these findings are that it’s more expensive to gain visibility through paid search and that continued reliance on paid endeavors leads to increased diminishing returns as time goes on.

GUESTS & RESOURCES

Ben:                  Welcome to SEO and EPS week on the Voices of Search podcast. I’m your host, Benjamin Shapiro. And this week we’re going to publish an episode every day, discussing how and why your SEO efforts are correlated to your company’s earnings per share. Joining us for SEO and EPS week, our two mainstays of the Voices of Search podcast. Doug Bell is the chief marketing officer at Searchmetrics, which is an SEO and content marketing platform that helps enterprise scale businesses monitor their online presence and make data driven decisions. And Jordan Koene is an SEO strategist and advisor to Searchmetrics. We also have a third, very special guest today, Melanie Schott, who is a marketing operations manager at Searchmetrics. And she’s gone ahead and done some analysis on the correlation between EPS and SEO performance.

Ben:                 So far this week, we discussed the correlation between SEO and earnings per share. And today, we’re going to dive in deeper and look at a comparison between how SEO impacts earnings per share and how paid visibility impacts earnings per share. Okay, here’s the second installment of SEO and EPS week with Doug Bell, Jordan Koene and Melanie Schott from Searchmetrics. Searchmetrics team, welcome back to SEO and EPS week on the Voices of Search podcast.

Jordan:          Hi Ben.

Doug:              Hey Ben, let’s get at it.

Melanie:        Hey Ben, how’s it going?

Ben:                It’s good, everyone. Glad to have you all back. Let’s recap what we’ve talked about so far. Melanie, you led the charge. Thank you for bringing some order to this podcast. You did a study that looked at what the impact of SEO has on earnings per share, but you also did some analysis to compare SEO’s impact on earnings per share with paid visibility and also the CMO’s tenure. Yesterday, we talked about the correlation between SEO and earnings per share, and it was a little inconclusive. And if we refine the data and we get a little less statistically significant, then it starts to look like SEO and EPS are pretty dang correlated. We’re actually starting to refine by industries and take a more near term timeframe. Now what I want to do is talk a little bit about the portion of your study that looked at paid visibility. So talk to me about how you looked at paid visibility and its impact on earnings per share.

Melanie:        We used all of this same methodology that we listed before. So the same 62 Fortune 500 companies from 2014 to 2019, and looking at a correlation between paid visibility and EPS, we found a relatively weak, negative correlation there. So saying its R= -0.67. So what this means is, as paid visibility is increasing, average EPS is decreasing and vice versa. But again, we already talked about the limitations. Correlation does not equal causation and this doesn’t technically meet our criteria of having the -0.8 for what we would consider significant. So I listed it as a weak negative correlation, but weakish. 0.67. Getting a little bit close to that 0.8 park. So there may be some further discussion to be had there.

Ben:                All right. Okay. So what we heard is, when we look at the dataset from these companies, with SEO, we see a mild positive correlation. Companies that have a strong presence, that is organic through Google, have strong earnings per share, or at least they’re slightly correlated. On the flip side with paid visibility, when somebody has high paid visibility, their earnings per shares go down. I have a philosophy on why this might be true. Jordan and Doug, I’m going to turn this over to you. And I want to hear what your perspective is. Why do you think that we’re seeing an indication, not a strong correlation, but a mild one, that when there is a high paid visibility, EPS is negatively impacted?

Jordan:         Yeah, sure, Ben. I’ll start here. When there’s a high paid effort by a brand, the driver here is obviously cost, right? And the reality is that many brands struggle with effectively finding good margin in paid search investments. Retail and ecommerce is a dangerously thin margin channel. And so the reality here is that there’s definitely some impact to spend. Maybe I could put this lightly, also, maybe people who frivolously spend their money in paid search are also doing so in other marketing channels, and there may be a tendency to just overspend as a whole, but I’ll let our CMO on this podcast comment on overspending by CMOs.

Ben:              Doug, that’s a weighted question. Jordan used to manage your budget for a few years here as the former CEO of Searchmetrics, dearly departed, and I think that he’s criticizing your spending habits here. What’s going on? Talk to me about overspending and why that’s bad for the business.

Doug:            I really wanted Jordan to respond first. I’m not going to make that mistake again, Ben, so we’ll start there. I’ll start there. And just full disclosure that Jordan was, at one time, one of my many bosses at Searchmetrics and had a deep interest in making sure I was not over spending my budget.

Ben:              Shallow pockets.

Doug:           Yeah. And by the way, Jordan, if you recall during that time, we were cash flow breakeven or positive. So just wanted to make sure that’s really clear. But I think Jordan has nailed it, which is really at the end of the day, there are two factors I would describe. The first is, it is much more expensive obviously to gain visibility via paid. That’s the first thing.

Doug:           The second thing is you’re chasing the diminishing returns curve, right? In other words, you have to keep spending those paid dollars. By the way, guys, this is not a “paid is evil and SEO is good” conversation. It just simply is describing if there is a heavy dependency on paid, in other words, not enough dependency on SEO, there’s a very strong chance, and I think Jordan nailed it, that your marketing mix is much more expensive than it should be.

Doug:           I think the other piece is, it’s a little bit like heroin for digital marketing folks, right? When you’re spending on paid, typically it doesn’t take as long to get the channel mix, right? It typically doesn’t take that long really to amplify and scale that. The challenge is once you turn that off, or if you are continuing to pay, in other words, you aren’t continuing to chase the point of diminishing returns, at some point you’ve got a gap, right? So I agree with Jordan. I think there’s probably a correlation as well, to organizations that are dependent on one expensive channel, tending to be more dependent on others.

Ben:               Jordan, I want you to write this down. I agree with Doug and I agree with you. There is a first time for everything. Melanie, I need you to bail me out here. This is not my standard operating procedure. So I need you to remind me who you were looking for. What type of companies went into this analysis?

Melanie:       Yeah, so this was the same companies that we looked at for our SEO visibility versus EPS correlation. There were a total of 62 Fortune 500 companies included in it.

Ben:               And what industries were they in primarily?

Melanie:      There was a pretty wide variety of industries. What they all had in common is that they had a strong ecommerce component.

Ben:              The reason why I bring this up, and I really, this is just a refresher for anybody that didn’t catch yesterday’s episode. What we’re talking about is a correlation for large companies, Fortune 500 companies, that have likely large budgets. They are to the point where they have maturity to be that large. They have large marketing teams. And my thought on this is if you have a high paid visibility in search, as a Fortune 500 company, you are likely relying on lots of paid marketing.

Ben:              I think that there’s a high likelihood that if you are investing in creating high paid visibility in search, you’re likely investing in paying for other channels, which means that you probably have not invested in driving organic and viral marketing channels. And so to me, as a Fortune 500 company, if you have truly high visibility, you’re probably overspending. That’s what I would guess is happening with this data.

Ben:             But I do think it’s important to think about that from the perspective of Fortune 500 companies with high paid visibility, it’s different for growth companies. If you are a small company and you are trying to grow quickly, not efficiently, it’s a different ball game. You can rely more on paid. Earnings per share is often impacted not only by volume, but also by efficiency. Doug, Jordan, I agreed with you. Do you agree with me? Is that something that’s dictating why these numbers look the way they do?

Doug:           I agree with you, Ben. I would also add here that we’re on the edge of strong negative correlation, right? So it’s enough of a theory. I think that we need to dig deeper into the data, certainly. I wouldn’t mind if you asked Mel to talk you through the next version of the study, but I would completely agree, right? So what we’re looking at is, especially when you have razor thin margins that Jordan spoke to, your ability to get products in front of people cheaply is half the battle. And if you’re using paid, that’s the challenge.

Jordan:        Yeah. I mean, there’s no question here, Ben, that the principles of managing ecommerce and retail business are ever present in this data, and I certainly agree. I would caution us here though, right? Because as you can imagine, we’re looking at, again, one very specific channel with a very small set of companies, and I wouldn’t take this, for the folks who are listening and then they’re paid search marketers, because many SEOs that are listening to our podcasts are also managing paid search, I wouldn’t take this as a warning to stop investing in paid search. That’s not the outcome. It’s not to go to your CEO and tell him, “Hey, your stock price is going to drop because you’re doing paid search.”

Ben:            Okay. That’s not what I’m saying. What I’m saying is don’t become overly reliant on performance marketing, not just paid search, but any sort of performance marketing, because if you invest all of your efforts in that, while it might have short term positive business impact, over the long term, we’re looking at a six year period, what’s going to happen is, as Doug called it, it’s the heroin of marketing, right? I would say it’s the sugar of marketing.

Ben:            You need to go eat your broccoli. You need to build your foundation, which is your organic traffic and your virality. So, my takeaway here, and Jordan, God forbid, I agree with you again, we do have to be cautious. We’re looking at one channel. We’re looking at a small sample size. We are guessing. We are pontificating that the reason why there is a potentially negative correlation for paid visibility is because that is an indication of CMO overspending. And so what we’re going to dig into is also what the CMO tenure’s impact on EPS is in tomorrow’s episode.

Ben:            That wraps up this episode of the Voices of Search podcast. Thanks for listening to my conversation with Doug Bell, Jordan Koene and Melanie Schott from Searchmetrics. We’d love to continue the conversation with you. So if you’d like to hear more of SEO and EPS week tune in tomorrow, when we discuss how a CMO’s tenure impacts earnings per share.

Ben:            If you can’t wait until our next episode and you’d like to contact Doug, you can find the link to his LinkedIn profile in our show notes. You can contact him on Twitter. His handle is marketadvocate, or you could visit his company’s website, which is searchmetrics.com. If you’d like to contact Melanie, you can also find a link to her LinkedIn profile in our show notes. And if you’d like to contact Jordan, you can find his LinkedIn contact in our show notes as well. You could also contact him on Twitter. His handle is JTKoene, or you can visit his personal website, which is JordanKoene.com.

Ben:            Just one more link in our show notes I’d like to tell you about. If you didn’t have a chance to take notes while you were listening to this podcast, head over to voicesofsearch.com, where we have summaries of all of our episodes and contact information for our guests.

Ben:            You can also send us your topic suggestions, your SEO questions, and you could even apply to be a guest speaker on the Voices of Search podcast. Of course, you can always reach out on social media. Our handle is VoicesofSearch on Twitter. And my personal handle is BenJShap. And if you haven’t subscribed yet, and you want a daily stream of SEO and content marketing insights in your podcast feed, we’re going to publish an episode every day during the workweek. So hit that subscribe button in your podcast app, and we’ll be back into your feed tomorrow morning. All right. That’s it for today. But until next time, remember the answers are always in the data.