Last week, I went to a friend’s wedding. Some of my old mentors were there, and they wanted to know what I was up to these days. I had to dust off my trusty old “how to explain SEO guide.” One teacher is married to an SEO tech, and he understood my work right away. Another teacher wasn’t sure if I was a well-paid hacker, or if I designed websites. Instead of explaining the ins and outs, I really wanted to tell them this: “A well-run SEO company is one of the most efficient types of businesses in existence, supporting the biggest driver of business we have today.” I didn’t have the resources to back that claim up over hors d’oeuvres and scotch, but I did think about it some more. Watch me back up my bold claim starting… now!
What Are Interaction Costs?
We’ll start by talking about “interaction costs.” This Mckinsey piece from over 10 years ago will explain it in depth and apply it to several case studies, but summed up in the following few sentences:
- Money = money and time = money.
- Interaction costs equal the time and money that is expended whenever people and companies exchange goods, services, or ideas.
- Interaction costs are the true “friction” in the economy. A competitive company, by definition, should minimize all costs, including interaction costs.
Depending on the company, the interaction costs are of different nature and scope. For the majority of service-oriented companies, (which include online Marketing, SEO) interaction costs come from customer acquisition and interaction. Each of these interactions come with their cost. Some classic examples:
- You meet someone for coffee to try and win over a new client.
- You go to a conference because you want to build a strong network.
- You write a good email to keep a client happy and updated.
What Are An SEO Agency’s Interaction Costs?
SEO is a service business. An online marketing agency should strive to minimize their interaction costs. As a service organization, the conventional operating costs are exceedingly low. Why? For starters, the work is completely portable. Also, tools are easy to acquire – hardware is cheap, and there is a healthy, competitive market for SEO software. Most amazingly (and this is increasingly true of other service industries as well) – the latest and greatest information and news is available for free, online, at a constant clip, via thriving communities. In short, there are few barriers for putting the cutting edge into practice.
Still, the costs remain. The investment needed to build a brand, close sales, and communicate with clients will never go away. Here are a few tips to oil the machine.
Five (Not So Quick) Tips to Drive Down Your SEO Agency’s Interaction Costs
1 – Customer acquisition – This could easily be your biggest spend. Sales is everything. I would not suggest cutting corners on this one. You gotta do business with someone. Nothing more to say here. Next.
2 – Get Your Communication Right the First time – This will set the tone for the life of the relationship. That will include setting expectations and discussing KPIs (Key Performance Indicators). Give clients appropriate and realistic ballparks for results. Otherwise, you may spend some serious time getting your relationship with the client into the right place, just trying to explain what you meant.
3 – Ongoing Communication – If you can automate a reporting process, this can save you much time – but it may make the client feel disconnected. Find the right balance that works right for your type of clientele.
4 – Unbundling (only if you can) – You want to find that happy medium between specializing in what you are best at and at the same time, offering as many services as possible to maximize the scope of your client relationship. Offering a large portfolio of services makes for successful cross-selling. Yet – “unbundling” – ie, specializing in one core process by divesting from less efficient parts of your company, is a sure-fire way to reduce interaction costs. My suggestion is to maintain mutual partnerships to keep the cross-selling alive, and to engage your team in lively debates over any targets for divestment.
5 – Meetings and Open Floor Plans – Meetings are a prime example of a sunk internal interaction cost. One hour is spoken for. What can be squeezed from (or wasted by) that hour? This is a question every manager (in any company) should be asking themselves. Maybe you might want to try hiring a meeting fairie.
Once you’ve succeded in doing all of this, you may be astounded with the extra time and money you have at work. Enjoy it, re-invest it – the choice is yours!
A few more thoughts on how the interaction costs, but from a B2C perspective: In the past, a business would plead with a customer to join its list, that pleading process taking up precious resources. A search engine, however, is equipped to do the same thing, but fully minimize these interaction costs – and does this extremely well. Bing’s “Decision Engine” branding echoes this fact. Search’s proficiency in minimizing interaction costs can also be explained in the following prominent caveat in any microeconomic model: such and such market realities will take place, “given perfect information.” In the past, the professor would always mumble, “but we never have perfect information.” Back in the day (15 years ago?) a consumer would have steep interaction costs to track down said information. This interaction cost we are speaking of here used to be borne both by the consumer or client.
The internet overall and search engines specifically minimize the barriers for consumer’s comprehensive knowledge of any given market. Today, at least at the moment of the search, the cost is entirely borne by the customer alone. What is amazing about this is that now that the internet is almost entirely mobile, that search can take place anytime, anywhere. Even time of day or physical location is no longer a barrier to minimized and one-sided interaction costs. This paragraph alone should explain why SEO should not be ignored, by anyone.