We Analyzed 120,000 Google Ads and Discovered How Local Businesses Can Crush Their Competition on a Tiny Budget

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I recently conducted a massive study to figure out Google’s local algorithm. (You can read all about the discoveries here.)

The takeaway from that study was clear.  Small local businesses could get listed in the local pack and outrank large national corporations!

By using smart techniques, such as using the location name in the website URL and building citations, a local business could dominate their local SEO scene.

But, what about paid search? How can a small local business compete with big businesses for Adwords?

This led me to my next study — how can local businesses compete against wealthy corporations in the world of paid ads?

The Data

Our goal was to find out how local companies could compete with large national chains or corporations, when it came to paid and local search.

The large national companies might be dominating Adwords, which would make it hard for smaller companies to bid against them. But, it might not matter, because the smaller companies could be ranking in the local pack, which would give them a competitive advantage over the big companies.

We pulled over 30,000 phrase match queries, many of which included the phrase “near me,” to gain localized results. We then analyzed these results. This included the AdWords on each SERP. In addition, we drilled down into select verticals that we knew contained both local and national competitors, in order to better analyze an actual industry example.

The challenging thing about local results and Adwords is the way that the SERPs vary widely, based on where you are, how you query and what you’re searching for.

For example, a search for “winter coat near me” will reveal an ad carousel, even if I’m looking for a local store that sells winter coats. Only one of those results has a local indicator.

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Searching for “ramen restaurant” pulls up a local pack.

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But, searching for “ramen restaurant near me” pulls up a single pack.

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Notice how none of the SERPs pictured above have any ads! When you begin searching for keywords that have Adword bidding, things get even more complex.

For example, what if there are only ads and a local pack above-the-fold, as in this example?

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Are users more likely to click on paid ads or on local results?

Casey Meraz conducted a heatmap analysis, published on Moz, to determine where users were most likely to click, based on the SERP layout when presented with ads and a local pack. His findings are worth mentioning here.

With ads at the top and the local pack beneath, most users clicked on the first local result.

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With ads at the top, a single local result underneath and then the local pack, most users clicked on the first organic result (not the local pack result).

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Even though there is wide variation between local SERPs, ad placement, pack placement and even whether or not ads appear, there is a consistent user trend:  When presented with ads vs. organic results (local or not), people prefer to click on organic results.

Casey’s data from the Moz article makes this exceedingly clear:

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The percentage of paid clicks is only 15%!

This basic understanding guided our analysis. As we headed into the study, from a statistical standpoint, we knew that Adwords were less likely to receive clicks than local organic results.

Our Findings

One of our drill-down verticals was a geo-specific query for law firms, from a New York City area IP — “lawyers NYC.”

We compared two levels of search results — the local pack vs. Adwords. We wanted to find out what was different between the two results lists and figure out the advantages or disadvantages of spending on Adwords vs. spending on local SEO.

Local Pack (Organic) Results

We analyzed 21 total organic results….

  • 19 of the total were actual law firms.
  • 16 of the total were local only (as opposed to a firm with nationwide offices).
  • 3 of the total contained a national presence.

Paid Search (Adwords) Results

As expected, the Adwords data that we analyzed was somewhat different. We analyzed 26 total Adwords results.

  • 11 were local law firms.
  • 11 were directories or informational sites.
  • 2 were for law firms with a national presence.
  • 2 were for law firms located in different areas of the country and not relevant to the local market.

Here is a summary of these findings, when expanded to include the entire corpus of law firms we identified in our analysis.

Adwords

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Local Pack Results

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What interested us was the way that the two lists overlapped.

  • Only one of the results that appeared in the local pack was also advertising on Adwords. The majority of organic and local pack search results had no Adwords presence on.
  • Only one of the Adwords advertisers had a local pack result. This Adwords advertiser is distinct from the one mentioned above.

Based on the data, there is very little overlap between Adwords spend and organic local pack results.

If your goal is to gain local foot traffic or phone calls to a brick and mortar location serving a local area, then you are best served by focusing on local SEO results, not bidding on Adwords.

For many digital agencies and businesses, throwing some money into Adwords seems like the logical choice for fast and easy traffic.

As our results suggest, however, you may be jeopardizing your organic traffic by competing in Adwords.

On the flip side, if your business goal is to gain web traffic and online conversions, then an Adwords approach may be in your best interest.

Here’s how I would break it down:

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Major Finding:  Don’t bid on Adwords, if you are a local small business competing against large national corporations.

If you are a small local operation competing against a large national company, you should invest in local search optimization instead of AdWords.

Why? Here’s the basic reasoning. If you’re a local business, you have every possibility of getting a spot in the local pack. Your local target market searching with local intent are statistically more likely to click the local pack than they are to click the paid search results. This means that you win in the battle for the click. This also means that you’re wasting money if you try to gain a paid search placement.

So, to effectively compete with larger competitors locally, keep these key points in mind:

Key Point #1: Google’s local algorithm ranks locally based businesses in the local pack, not large national corporations.

In local search results, the most important ranking factors are relevance, distance and prominence. National companies typically aren’t competing in a way that allows them to gain access to the local pack. As a result, local businesses have the advantage.

Key Point #2: Most local users, which is your target market, will click local/organic results rather than paid ads.

Remember the heatmap from above? What if that’s your business as the top local result — covered in a red-hot mass of clicks?

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If that’s you, then you’re winning. Paid ads simply don’t get as many clicks!

Key Point #3: Adword competition can be expensive, because competing in Adwords is essentially throwing money away. You probably don’t have the same budget as the big boys, able to throw money towards advertising.

Besides, it’s useless to try to compete with companies who are trying to gain national visibility. While it could make sense to target only your geographical area, the bid amounts are still very high and the likelihood of your gaining ROI from these bids is very low.

Key Point #4: It’s easy to make Adwords mistakes.

In addition, we found many businesses that were essentially flushing money down the toilet by failing to localize their Adword bids. For example, one tourism website was advertising nationally for a non-geospecific Adword, even though the site was focused on travelers in Louisiana.

Their ad spend was so vast that their ad results appeared in Chicago, Los Angeles, New York City and Houston. Using a Houston IP, we queried “tourist information center” and this Louisiana website snagged the top paid result.

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Conclusion

So, what should you do, instead of spending on Adwords and jiggling your bids? Follow these instructions:

Step #1: Set up your Google My Business page, if you haven’t done so already.

Step #2: If you have a website, make sure that it contains the name, address and phone number (NAP) in the header or footer and also on a specific page (such as your “About” or “Location” page).

Step #3: Use Schema.org data markup on the NAP in the website, like this (insert your own information for the all caps placeholders):  

<div itemscope itemtype="http://schema.org/LocalBusiness">
<p itemprop="name">COMPANY NAME</p>
<p itemprop="address" itemscope itemtype="http://schema.org/PostalAddress">
<p itemprop="streetAddress">ADDRESS LINE 1</p>
<p itemprop="addressLocality">CITY</p>,
<p itemprop="addressRegion">REGION</p>
<p itemprop="postalCode">POSTCODE/ZIP</p.
<p itemprop="telephone">PHONE NUMBER</p>
<meta itemprop="latitude" content="LATITUDE" />
<meta itemprop="longitude" content="LONGITUDE" />
</div>

Step #4: Create a company page on Facebook, Yahoo and FourSquare. You should also add your business to any industry-specific sites, such as Urbanspoon, if you’re a restaurant. Try to build company citations (mentions of your business’s name, address and phone number) in reputable directories or business listings.

Step #5: Serve your customers as best you can and work to build positive reviews. Businesses with high reviews may rank higher in the local pack and they definitely have a positive impact on users.

I know what it’s like for small local businesses to try to compete in the world of digital marketing. I spend a lot of time coaching small business owners on how to improve their reach and build their business.

Thankfully, it doesn’t take a lot of cash or a ton of time. More importantly, it doesn’t require you to waste money on Adwords. When you focus your efforts on the things that matter — local results — you’ll gain better visibility and more traffic.

If you work with a local business, what is your experience in competing for Adwords?

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