Acceleration's director of search marketing explains how to determine if you're paying for traffic you're already getting free from organic listings.

In my last article I referred to the "subsidy cost" of paid search; I would like to expand on the subject here.

The key question is this: How does one manage the interplay between paid and organic search in a way that will allow you to quantify the incremental gains in traffic and conversions (success events) to your website when paid search is added to the mix?

For example, a retailer may be investing in paid and organic search. The retailer is ranked prominently on their brand and best selling product terms in the organic listings. They have also bought these terms and are ranked high in the sponsored listings. When the CMO reviews the ROI of each channel individually, the results tell a positive story. However, when the CMO reviews the results on a holistic search level, the incremental lift in conversion gained from adding paid search to the mix is less than the total number of conversions being attributed to paid search measured separately. In other words, one plus one does NOT equal two.

What I demonstrated above is a subsidy cost-- a cost that is incurred to make a sale when the sale would have been made anyway. From a search marketing perspective the question that really begs to be answered is: Should you be paying for search traffic and ultimately conversions if you appear organically in a top position where the sale would occur without you having to pay for it?

It makes sense to be aware that there may be a subsidy cost and to understand its impact on your paid and organic search campaigns. Here is a simple step-by-step approach to establishing the subsidy cost of your paid search campaign.

In the absence of paid search marketing, determine the following:

• How much organic search traffic does your site receive?
• How many sales (and income) does this traffic generate?
• What keywords or keyword groups are generating the sales?

When paid search is included in the mix, determine:

• How much traffic is generated by the paid search campaigns specifically for the keywords or keyword groups you measured above?
• How many sales (and income) does this paid search traffic generate?
• How many of these sales are new sales and how many are cannibalizing existing organic sales? Put differently, what is the subsidy cost of running the paid search campaign?
• Based on the answers to the first set of questions, what is the true ROI of the paid search campaign (based on incremental, not gross paid search sales)?

Factors that affect how big the subsidy cost include the following:

The effectiveness of your organic optimization
It is almost impossible to get ranked on every keyword that will drive traffic and conversions. This becomes more of a challenge the larger your product set. I have done a lot of research on this issue with my attention being focused on organic and paid listings of companies across varying verticals. Lately I have been looking into the severity of subsidy costs for a global PC manufacturer, searching on very generic keywords, very specific product terms and brand keywords. On generic terms like "computer" they are in the top five listings organically, but add "buy" before computer and they are nowhere to be seen, yet they are number one in paid listings. I searched for numerous PC models excluding the brand term and was surprised that their natural listing appeared halfway down the page, although they were the number one sponsored listing. On brand terms they are number one in both paid and organic.

What this simple test highlights is that no matter how good your SEO efforts are, it is near impossible to appear organically on every term, and paid search has to be included in the mix. But you should be aware of the subsidy costs where relevant.

Your keyword mix
The subsidy cost tends to be highest for brand and product-related keywords, and lower when you add tail-end keywords with low traffic volumes. So why pay for brand terms? You can control your messaging. You can control and test your offers and landing pages. You can be more flexible.

The competitiveness of your category
The more competitors there are in a given industry the more difficult it becomes to rank organically in prominent positions. Paid search becomes a bigger driver of traffic and the subsidy cost is lower.

Conclusion
In conclusion, organic and paid search are two vital components of a very dynamic advertising medium. However, they are often managed independently of each other. They should not be managed in silos but rather as an integrated whole to understand the interplay.

Through this exercise, paid search marketers should also realize that successful campaigns should include hundreds, potentially thousands of keywords where subsidy cost is almost non existent. By understanding which keywords are creating this effect and measuring the impact, learn how to maximize your advertising dollars without cannibalizing existing natural conversions. In short, perhaps its time to re-evaluate your keyword set.

Of course you need to have a good analytics tool that can measure natural search traffic and conversions, and a great analyst to mine the data; you also need a good bid management tool to measure the effectiveness of paid search keywords in different positions.

Wayne Lieb is the search marketing director at Acceleration. Read full bio.