SEO Strategies
Pay Per Click Bid Management Strategies Part I
Maximizing your PPC marketing program by Richard Ball
Mar 10, 2005
Editor's note: This is Part I of a two-part article on PPC strategies. Click here for the second half of this article.
Identify Max CPC
PPC (pay per click) bid management begins with identifying the maximum CPC (cost per click) you're willing to pay for a given keyword phrase. If you do not know this value, it is perhaps not advisable to engage in PPC advertising. The max CPC will change over time and could vary from search engine to search engine. If you don't know this value, start with an educated guess. This could be based on an industry rule of thumb or calculated based on internal factors such as profit margins. For example, let's suppose you're bidding on the keyword phrase "nike shoes" but do not know your max CPC. One way to estimate a max CPC involves taking the top five bids on Overture and computing the average. Recent bids are: $0.51, $0.50, $0.33, $0.32, $0.31. The average is 39 cents. Use that as your max CPC to begin with.
A better approach is to base the CPC on your profit margins. Let's suppose your average sale price on a pair of Nike shoes is $80 and your profit margin is 20\%. That leaves $16 of profit for each shoe. Also, assume that your conversion rate will be 1\% (this is a conservative estimate). For every 100 visitors from a PPC ad, you expect one sale. If you have $16 of ad spend to spread over 100 visitors, you have 16 cents to spend per click. Another way to approach this problem is to have an ad spend based on revenue. For example, if your goal is to spend 15\% of revenue on advertising then your ad spend would work out to $12 per shoe. Again, assuming a conservative 1\% conversion rate, that would leave you with 12 cents per click. As your campaign progresses and you determine your actual conversion rate, adjust the CPC accordingly.
Different strategy for Google vs. Overture
Adopt different bidding strategies for Google and Overture. Their PPC systems are quite different and it's worth the effort to identify different bids across the two search engines for the same keyword phrase. Overture sponsored results are based solely on bid while Google uses a combination of bid and CTR (click through rate). Start with Overture to determine initial bid range as their bidding system is open. It's likely that advertisers bidding for keywords on Overture are also bidding on Google and probably in the same range. For Google, use the Overture bids as your starting point in the short term and reduce the bids for the long term if your CTR is high enough.
Don't bid for spot No. 1
Contrary to what the search engines themselves recommend, it's usually foolish to bid for the top spot. Why? Two reasons: 1) It's often prohibitively expensive, and 2) most web surfers usually try a few different search queries until they've found the right one that fits what they're actually looking for. A click from a surfer in the midst of refining a query usually doesn't result in a conversion.
Tailor bids to actual search results
Track your paid traffic by keyword. Look to see which sites bring the bulk of your traffic and build your bidding strategy accordingly. Google ads will likely come primarily from www.google.com and aolsearch.aol.com while Overture ads will likely drive traffic from search.yahoo.com and search.msn.com. Run search queries for your keyword phrase on the search engines that send the bulk of your results and see where your paid ad ranks. Note how many ads are on each page and whether they're full ads or brief ads. Know where you want your ad to show up in the search results. Do you want your ad to be above the fold on the first page or is anywhere on the first three pages of results sufficient? Your max CPC will limit your choices.
Take advantage of bid gaps
Normally, bids are separated by a penny or two. Bid gaps occur when there's a significant price increase to move up one spot in the PPC rankings. Looking at the top bids for "nike shoes" on Overture's system:
1) 0.51
2) 0.50
<-- Bid Gap
3) 0.33
4) 0.32
5) 0.31
<-- Bid Gap
6) 0.16
7) 0.16
<-- Bid Gap
8) 0.11
9) 0.11
10) 0.10
11) 0.10
Is it worth almost twice the price to move from spot No. 6 to spot NO. 5? Now that Yahoo is showing more ads per page and fewer search results, it is probably not worth it. Big advertisers blindly set a CPC across a large group of keywords, causing these bid gaps. Take advantage and fill a bid gap. For example, if your initial max CPC for this phrase was 32 cents, maybe it's worth only bidding 17 cents.