Recently Mark Thompson wrote a post on Search Engine Optimization vs Pay Per Click Marketing and which marketing strategy is more effective. This post is focused more on pay-per-click marketing and something we call the “PPC Trap.”

Here’s how the PPC trap works:

A business jumps into online advertising by bidding on a few keywords on a search engine. At first, competition is low and the bid price for the keywords is also low, so the business is able to grow and prosper online. As time goes on, more competition enters the market and bid prices steadily increase. By now the business is dependent on the flow of new business leads from the paid advertising, so they double-down and increase their spending to maintain top positions and traffic. As spending increases, conversions decrease because there are more competitors aggressively competing for each customer.

We call it a trap because companies we’ve worked with (and we were brought in to help) were literally trapped by their paid search engine advertising. The operation they have created around the business generated from the PPC advertising creates fixed overhead/expenses so they are forced to continue advertising just to sustain their operation. However, simultaneously they are breaking even (or worse) from their ongoing operations due to the high cost of advertising.

Breaking the cycle can be difficult and requires some delicate work to bring the business back to profitability and eliminate the PPC dependency. In many cases it simply involves a focus on fundamentals including increasing conversions, increasing revenue per customer, reducing overhead, and a focus on natural search engine optimization. However, in some cases the business fundamentals can be so upside down that the only option is a bankruptcy reorganization and subsequently focusing on the fundamentals described above.

If you think you might be at risk of falling into the PPC trap, the sooner you identify the issue and begin working on solving it the stronger your business will be in the long run. Even if things are going well and profits are strong, if your business is based in a large part on PPC advertising it would be smart to diversify your advertising and marketing a bit and concentrate on building competitive advantages wherever possible.

As a side note, if you found this post interesting you might also check out our related article “Are You Working for Google?” This covers the PPC model in a bit more detail as well as our thoughts on sustainable competitive advantage on the Internet.