Search Engine Marketing (SEM) can be a highly effective way of promoting your goods and services on online search engines, including Google. However, you have to be careful that you know what you are doing, or else your SEM costs can rapidly get out of hand.
You need to set a realistic budget for SEM, which will depend on the size of your business and the competition you face for your important keywords. With many small and medium-sized businesses (SMBs) spending $10,000 per month on SEM, and larger businesses comparatively higher, you need to ensure that you are receiving value for your investment.
What’s the Difference Between SEO and SEM?
We have previously looked in detail at What is SEM and how it can help grow your business. In that article, we defined SEM as being the systematic process of attracting website traffic by purchasing advertisements on search engine advertising platforms. You see examples of SEM all over the internet, perhaps most notably in the Sponsored results shown near the top of Google search pages.
In the above example, all the Google search results above the fold, as well as the image ads on the right, are Sponsored ads – an example of search engine marketing (SEM). Whenever somebody clicks on one of these ads and follows through to the appropriate landing page, the advertiser will make a payment to Google.
We regularly refer to PPC (Pay-per-click) advertising. SEM is one form of PPC. The example shown above (Sponsored Ads on Google) is an example of SEM and PPC.
Search Engine Optimization (SEO), however, focuses more on organic content, rather than paid advertising. SEO is a series of techniques content creators and website owners use to generate traffic to a website. The purpose of SEO is to boost your content in Google’s organic search rankings (or other search pages, such as YouTube or Bing), without having to pay.
The above screenshot continues from the previous image in Google’s search results. It shows the top four organic results, following on from the last of the initial set of Sponsored (SEM/PPC) results, although additional Sponsored results appear further down the listings if you scroll enough.
You will notice in the above results, that although some firms achieve high organic ratings thanks to the quality of their SEO, they also opt to pay for ads (SEM) to make themselves even more visible. For example, both Harvey Norman and Noel Leeming made it to the top four organic listings, yet both have also purchased ads for the search term “microwave ovens”.
While you may pay an agency for your SEO services, we do not include these in our analysis of SEM costs here, as SEO is a more indirect method of earning money for your business.
Advertising on social media platforms, such as Facebook, operates very similarly to SEM but is appropriately called Social Media Marketing (SMM) instead. Most of the same principles (and costs) apply to SMM as SEM. Advertising on some eCommerce websites, such as Amazon, also follows the same pattern.
What Are Typical SEM Costs Businesses Face
As we have seen, SEM costs are what businesses have to pay when they engage in (predominantly) PPC marketing on search engines. These vary depending on whether you choose to work with an agency for your SEM management or instead opt to run your SEM campaigns in-house.
Some typical SEM costs include:
- Agency fees (if using an agency) – these will often incorporate most of the other fees in this list, as most agencies will combine the costs of creating and running your campaigns in their fees).
- Cost of any tools or platforms you use (the cost of these varies greatly, depending on what you want from them). For example, Trellis, which you can use to run SEM campaigns on Amazon, Walmart, and Google Shopping, has plans ranging from $299/mo. to $1,499/mo. depending on your revenue levels. AdEspresso has features assisting you with Facebook, Instagram, and Google campaigns, with plans ranging from $49/mo. to $259/mo. SEMrush (with 40 different tools to manage your brand’s online presence) costs between $119.95/mo. and $449.95/mo.
- Landing page development
- Employee salaries
- Cost Per Click (CPC), payable to the relevant channel, e.g. Google, Bing, YouTube.
- Any content creation costs for your ads (may be negligible for text ads, although somebody still needs to write the ad).
What are the Average Firm’s Search Engine Marketing (SEM) Costs in 2024
In many ways trying to establish an average cost of Search Engine Marketing is much like establishing an average length of string. There are too many variations for any figure to be meaningful to your particular business. Factors affecting the amount your firm spends on SEM include:
- Your ad spend budget
- Your advertising strategy
- Your campaign scale
- The charges of any SEM agency you use
WebFX claims that industry studies show most SMBs invest $9,000 to $10,000 per month on SEM services and campaigns. HawkSEM is less specific but says that SEM costs typically range from $3,000 to $10,000 each month. Zoe Marketing & Communications has found that the average cost of SEM by their clients is $4,050/month.
DesignRush observes that the most fundamental of SEM costs $499 to $999 per month. They believe, however, that the essentials of search engine marketing cost $1000 to $1999 every month. Area-focused SEM prices can range from $2000 to $4999 per month. If you require your ads to appear in multiple locations, then fees range from $5000 and $19,999 every month. If your needs are still higher, and you face competition for your preferred terms, SEM services cost from $10,000 to more than $39,999 per month.
HawkSEM has found that CPC costs:
- Competitive industries: $5-$50+ per click
- Medium-competitive industries: $1-$5 per click
- Less competitive industries: $0.50 -$2 per click
HawkSEM also estimates that 85% of PPC agencies charge an hourly rate between $50-$200 an hour, with 51% of firms charging between $1,000-$3,000 per month. In comparison, if you intend to operate in-house, a PPC manager costs an average of $61,672 per year in the USA.
Agency Pricing Models Used with SEM
If you’re using an agency for your online marketing, then any SEM costs will undoubtedly be included in the invoice you receive from your agency. There are a range of ways they can choose to structure their pricing.
Most agencies will charge monthly for their SEM services. This is because you need constant attention to your SEM marketing if you’re going to continually outrank your competition.
1. Flat Rate Management
As the name indicates, your business pays a flat rate each month to its agency for its SEM ads, regardless of their exact cost or the revenue they generate. This ensures that you have a predictable bill for your SEM costs, making budgeting straightforward. You shouldn’t encounter any nasty surprises. You will pay the same rate in your busy seasons as your quiet.
Of course, this consistency can come at a price. Your agency may expect you to pay a higher upfront cost than other methods. Also, you may find that you receive fewer deliverables, particularly in your peak times.
You can still increase the volume of your SEM ads if you wish at particular times of the year, but you are likely to have to pay an extra fee for doing so.
2. Percentage of Ad Revenue
Some agencies charge for SEM as a percentage of ad revenue, i.e. you pay based on the results of your campaigns. You pay more when your ads are successful and less when few people take notice and click on your ads.
Many businesses love this method, because they pay more during your high-sales periods, and less during your quiet times. However, there are some serious downsides to this method, making it less popular for most firms.
It can lead to extreme variability in what you pay for your ads, depending on the time of year. Indeed, there can be extreme pricing spikes for seasonal businesses. This makes budgeting difficult, and it can be challenging to predict your monthly SEM costs. You also don’t get to enjoy any of the benefits of economies of scale – if you increase your advertising, and this results in increased revenue, your SEM costs increase proportionately.
3. Percentage of Ad Spend
Another agency pricing model for SEM is paying based on a percentage of your advertising expenditure. This is more predictable than the Percentage of Ad Revenue because you can control the amount you spend on your advertising. Your agency is likely to charge you an advertising fee that is proportional to your budget.
Depending on the level of your ad spend, your agency could charge you somewhere in the range of five to 20% of it.
One advantage of this model is that it takes away any incentive for your agency to target low-value opportunities. Of course, it does motivate your agency to have you spend more on advertising, to increase your SEM costs and, in turn, their revenue.
A negative of this method is that it doesn’t necessarily encourage your agency to perform – they receive payment from you regardless of whether the ads generate sales or meet any other goals. And as with Percentage of Ad Revenue, you don’t get to enjoy any economies of scale.
4. Flat Project-Based Rate
This method is like flat rate management – but it only applies to a specific one-time business project. For example, your agency may charge you a set fee for the creation of a landing page or other website redevelopment.
5. Capped Management
Capped Management usually involves taking a modified version of one of the above pricing models but capping the cost to a certain level. Once your SEM costs exceed that figure, the agency will then change over to using another pricing model when invoicing you.
For example, they may charge you a fixed rate until you reach a certain spending level on ads. Once you’ve spent that sum, however, they may then charge you a specified percentage of your ad spend on top of (or in place of) that fixed rate.
Depending on precisely how your agency positions its Capped Management plan, it should give you some element of predictability, making it easier to budget your advertising spending. However, you should be able to scale your SEM costs, when you decide to increase your advertising spending, perhaps in your busier periods or seasons.
This can be a “best of both worlds” type of SEM agency pricing model. You may struggle to find agencies that implement this within your price range, however, your spending may never be high enough to reach the level where the pricing method would change.
Other Factors Affecting SEM Costs
1. Your Ad Spend
Ultimately, the biggest factor affecting your SEM costs will be the budget you are prepared to allocate to your Search Engine Marketing, and how much you are willing to spend on your online advertising. And as we have seen above, some agencies adapt their prices to reflect your level of ad spend.
Your budget will also dictate whether you can afford to work with an agency, or whether you are limited to carrying out your SEM campaign in-house to minimize your SEM costs.
2. The Competitiveness of Your Niche/Industry
Depending on your niche or industry, you may find yourself competing with multiple other businesses for the best advertising spots. In a competitive PPC market, such as Google Ads, you bid against everybody else for the right to place your ads in the best slots.
As part of the behind-the-scenes process, Amazon compares bids received from advertisers for relevant ads targeting the search keyword (or specified product). The ad with the highest bid wins the auction and Amazon then displays the highest bidder’s ad near the top of the product search results. Although this is not technically SEM (although it does involve the powerful Amazon search engine), a similar process occurs for most SEM advertising channels.
Some products/niches/industries are coveted by advertisers, and you are likely to face fierce competition. In that case, you need to bid a higher rate for your ads than for less popular terms.
3. Your Preferred Ad Strategy
Your preferred ad strategy will relate to the competitiveness of your niche or industry. The amount you end up paying for ads will depend strongly on your (or often your agency’s) understanding of how to compete for the best possible advertising slots, without bidding too much and breaking your budget.
You (or your agency) need to design your strategy to meet your marketing objectives. And it won’t just relate to the keywords you want to target and the amount you’re willing to bid for them. It includes the landing pages you link your ads to and the aesthetics you include in your ads and landing pages.
Of course, these factors are all interrelated. Your preferred ad strategy will need a budget and minimum ad spend of a certain amount to be competitive. For example, you can’t bid on high-level competitive keyword terms, if you don’t have sufficient money available to make realistic bids.
4. Campaign Size
Campaign size has an impact on your SEM costs, and this once again is related to the budget you are prepared to allocate to your digital advertising. The higher your budget, the more campaigns (and the scale of each one) you should be able to have.
Obviously, larger campaigns will cost more than shorter ones. If you’re working with an agency, then the agency may determine the optimal size of any campaign, based on trying to meet the goals you have expressed to them.
Wrapping Things Up
Although we have taken a wide view of what constitutes search engine marketing (SEM) here, including products like Amazon ads (which rely on an in-depth search engine for its products), by far the most common type of SEM is Google Ads. Most businesses want their products to appear in Google searches, and when they can’t achieve this organically, they try to boost their presence with Google PPC ads. Even brands with top-quality SEO, leading to high organic search positions, often engage in SEM to give them an additional presence at the top of Google Search Engine Results Pages (SERPs).
The level of SEM costs for any business will vary depending on many factors, including the size and scale of the business, marketing goals, whether they work with an agency, and the popularity of the firm’s industry or niche.
If you’re working with an agency you need to allow for the fact that even for a small business the agency will need to spend 5-15 hours on initial set-up, followed by 5-10 hours per week for maintenance. If you think you can do this work internally, realize that you will need to devote about 15 hours/week to the work.
As Michele Potts, Zoe Marketing and Communications’ sales director says,
“Most anyone can do SEM, but not everyone can do it well … Most clients hire us after realizing this firsthand”.
