So a few years back you were sold on the idea that getting your business online was the way in to the hearts, minds and wallets of new customers. Now after countless attempts, speaking with “expert” upon “expert” about online advertising and burning through capital like it was kerosine, you are left wondering if anyone but the companies taking your money are making money online.

The reality is that you got burned because whoever ran your online marketing program went out and spent a pile of YOUR money without really understanding what they were doing (Online marketing is just not about having a pretty website). Luckily, you protect yourself against this from happening again by understanding 3 basic interrelated concepts.

Concept 1: Customer acquisition costs and value
Two things you need to know here:

λ How much are you spending to acquire leads/customers across all your marketing channels; and,
λ What is the lifetime value of a customer to your business?

These figures are simple to calculate and every business, regardless of how they are marketing, need to be know them. This information gives you the basis to determine if any marketing initiatives you undertake are actually making a difference in either increasing revenue or decreasing costs; This is how you judge the success of any marketing initiative. If you launched an Internet marketing campaign without these numbers, then you shot yourself in the foot before you even started.

Concept 2: How people search the Internet

During a prospect's purchasing cycle, they search the Internet using either generic/category keywords and phrases that are associated with a product you sell, indicating that they are at the beginning of their research cycle or they use direct brand/product related keywords, indicating they are close to a final purchase. Sometimes you might hear Internet marketers use terms like “Head of the Search” and “Long Tail”. These terms relate to how people search for information on the Internet. The “Head of the Search” are the 10 to 20 brand or product related keywords of phrases that drive 50 to 60 percent of a websites' visits – these are often used by people who are close to making their purchase decision. The “Long Tail” are the generic words and phrases associated with the category or type of products you sell. For the average website, there can be 1000's and 1000's of long tail keywords and phrases (most of which you could never come up with yourself) that send traffic to your site.

Let's throw an automotive spin on this concept to bring it home, pretend a prospective customer is looking to buy, say a tire demounting tool. It's obviously not the most expensive or complex purchase, but it should illustrate the point. If they are just starting to search, they use some pretty generic keywords or phrase, like “tire demounting tool” (See figure 1), in order get a grasp of some basic information/product availability.)

Near the end of their product search, they get a little more specific, maybe use a brand name or product specifications like “22.5-inch tubeless tire demounting tool”. (See figure 2.)

The implication of the difference of search behavior is that you can utilize two different Internet marketing tools to target people during different phases of the purchasing cycle. The goal is to turn the Internet surfer at the beginning of their product research into a prospect and convert the prospect near the end of their search into a buyer (in fact if you have structured your Internet marketing program properly, hopefully they are already in your sales funnel).

Concept 3: The two forms of Internet marketing

At the most basic level, there are two main types of Internet marketing. Search engine optimization (SEO) and search engine marketing (SEM). The differences break down like this:

λ SEM is when you pay the search engines (GOOGLE, BING, YAHOO) directly to show an ad related to your site. This is paid search and the results are circled in red in figure 3.
λ SEO is when you pay someone to use various techniques to make sure your website shows up well in the organic or unpaid search results. Although you still paid for someone to do the work, this is still considered unpaid as you are not paying the search engines to show your site. If you look at figure 3, these results are highlighted in yellow.

What you need to understand is that for most businesses, SEM should be used to target Internet users who are searching using category related keywords and phrases (the Long Tail) while SEO should be used to target prospects who are near the purchase phase and using brand/product related keywords to search for your product offerings.

Putting the pieces together

Successful Internet marketing pulls these 3 ideas together. Once you know your customer acquistion costs, your company should be using SEM/PPC advertising to capture new prospects and SEO to convert prospects to buyers. Since you know your company's customer acquisition costs, you can relate them the costs of your Internet marketing to determine if your online efforts are generating a decent ROI of your marketing budget or if you could make better use of the funds elsewhere.