Dialing for Small-Biz Dollars

Pay-per-call ads are luring to the Web service-oriented businesses that don't have Web sites and prefer calls over clicks to rack up sales

by Jeffrey Gangemi

Three-year-old Rhode Island-based roofing company AS Enterprises had a big, albeit common, problem: not enough customers. Owner Ann Marie Appleton had tried offering free estimates in local circulars and flyers, but her competitors were doing the same, and the resulting leads were lukewarm at best. She considered an ad in the SuperPages yellow pages, a division of Verizon (VZ) spin-off Idearc Media (IAR), because of its large distribution and solid reputation, but the next edition wouldn't be delivered to homes for eight months.

Eventually, Appleton's sales representative sold her on the idea of a monthly agreement for the company's new Pay For Call service, where businesses pay for each call made to their business via SuperPages' online local search results.

Appleton couldn't be happier with her choice. The service costs around $600 a month, depending on how many times her ad is served and how many calls she gets. AS Enterprises totaled more than $240,000 in sales in 2006, up from just $60,000 the year before, and Appleton says a good 70% of that business came directly from her pay-per-call advertising.

Calls Over Clicks

People used to call just for the free estimate, says Appleton, but those who call from SuperPages are ready to do business. Her closing rate on calls went from 25% to between 60% and 70%, and her call volume has tripled. Since the service requires that she bid against other businesses, each call costs about $25, but Appleton says she'd gladly pay twice that. "It pays for itself with just one job, and I get between four and eight good jobs a month," she says.

Princeton (N.J.)-based research firm The Kelsey Group estimates that the pay-per-call market will more than double each year for the next five years, with revenues reaching $3.7 billion by 2010. "Call tracking will live side-by-side with pay-per-click, e-mail tracking, coupon prints, and other measurable consumer actions. For off-line businesses in the service sector (painters, roofers, etc.), calls will have a higher importance than clicks," says Matthew Booth, senior vice-president and program director for interactive local media at Kelsey.

Small-business customers like Appleton say it offers a better return on investment than pay-per-click advertising and suits the needs of businesses that often can't close a sale via the Web only (see BusinessWeek.com, 1/29/07, "Small-Biz Ads: The Year of the Web").

Dropping the Dime

Still, the acceptance of pay-per-call by no means signals the end of pay-per-click; in fact, that market continues to grow. But some small-business advertisers are getting outpriced by their larger counterparts (see BusinessWeek.com, 1/22/07, "The Small Fry Sour on Search Ads"), leading them to look for alternatives.

Most pay-per-call advertising services work like this: First, companies bid for placement on keyword searches. Then their ad is served to the user based on location, and the company is charged each time a user calls; the ad itself is placed for free. When companies register with most providers, their site is assigned a unique phone number that appears in the ad, so that the company can track how many calls actually come through the pay-per-call advertising system. Businesses only pay when someone searching for their product or service picks up the phone and calls them.

Some companies think that the local nature of the product will bring in loads of new advertisers. Ingenio, a San Francisco-based local search advertising company with 110 employees and more than $100 million in annual revenue, is one that's betting that the torrid growth rates of pay-per-click advertising can't continue forever. "Everyone focuses on the 500,000 U.S. businesses targeted by pay-per-click, when there are 13 million businesses not engaged online at all, and 70% of them don't have Web sites," says Ingenio Chief Marketing Officer Marc Barach.

Serious Callers

Therein lies an untapped demand that's making companies like Ingenio salivate. Through their bidding system, Ingenio, like SuperPages.com, has created a virtual market that dictates its own pricing, much like the pay-per-click model. Barach says prices vary across different industries and for different services. Legal-service ads draw higher prices than those from hair salons, for example. And when tax time is peaking, Barach says the price of placing tax-service ads on portals such as AOL (AOL) and MSN (MSFT) goes through the roof.

Barach thinks the advertiser's return on investment more than makes up for the higher initial price of pay-per-call vs. pay-per-click. He says the average conversion rate on a pay-per-call ad is three to five times more successful than a pay-per-click ad in a field like legal services, and that rate grows to eight times for smaller purchases like flower shops. "The reason is that people who are clicking to read Web sites are in the research phase, and people who are calling the merchant aren't doing it for entertainment. Hence, these things convert more."

Get Them Talking

Google (GOOG) is currently at work on its own pay-per-call service, which already works as a part of Google Maps but hasn't yet been offered to U.S. small businesses. In that system, users click on an icon for a restaurant, enter their numbers, and an outside provider connects the user and the establishment. The company has already launched a formal pay-per-call product in India, says Rohit Dahawan, a product manager for Google that oversees the click-to-call and pay-per-call products. And they're working on more such products, to be launched in the next several months in the U.S. They've also started tracking calls as part of their updated small-business AdWords service.

When deciding with whom to advertise, small businesses try to keep in mind the eventual placement of their ads and the amount of traffic that will see it. SuperPages.com had 2.8 billion searches in 2006; Ingenio's network of AOL and MSN reached more than 1.1 billion searches. Says Robyn Rose, vice-president of Internet marketing for Idearc Media, "Having a heritage in the yellow-pages business, we know that about 70% of companies are service-based. Most want to conduct business over the phone."