One of the hardest areas of AdWords for new advertisers is most definitely bid management. Unless you have an affection for math, you will most likely not find the bidding part of AdWords very intuitive.
In this blog post, I’ll show you how I usually set my bidding, which factors I account for, and how I adjust my bidding in the first month of a new AdWords campaign with conversion data.
In this scenario we’re pretending that we have no previous AdWords data and we’re starting our AdWords account from scratch.
The Fast Approach – Just Take a Guess
When you set your bids in the initial stage and have no idea what bids to set, I advise you to just guess.
This approach focuses on the fact that you don’t want to spend a lot of time doing math and simply want your campaign to get started. This will enable you to gather data and set your bids accordingly afterward.
Please note however that I don’t advise on this approach if you’re pressed for time, have a limited budget or if you’re under the gun.
Another quick approach to setting your initial bids is to use the Traffic Estimator Tool. This allows you to base your guess more on facts instead of merely guessing with no basis whatsoever.
Review After 24 Hours
24 hours after you have activated your campaigns with your initial “guesswork” bidding, it’s time to review your data.
Based on your average position, I advise you to change your bidding to mirror the following percentage distribution:
- Positions below 4.0 = Increase bidding by 20%
- Positions below 6.0 = Increase bidding by 30%
- Positions below 9.0 = Increase bidding by 50%
- Positions below 11.0 = Increase bidding by 100%
These guidelines should be revised if you’re already maxing out your budget.
Revise this every 24 hours until you find your sweet spot. The sweet spot being when your keywords have the highest average position while still keeping your costs within budget.
The Mathematical Approach to Setting Bids
If you already have traffic coming to your website and know the overall conversion rate of your website, you can calculate an estimate for your break-even cost-per-click.
If you have an average conversion rate of 2% on your site and you know that you have an average value per sale of $100, then you can calculate your max. CPC.
Calculating your Break-Even Bid
The formula is as follows:
Value per Sale * Avg. Conversion Rate = your break-even cost per click
$100 * 2% = $2
Translated into bid management, this means that if you pay $2 per click and receive 100 clicks, your total cost will be $200. With a conversion rate of 2%, your obtained revenue will also theoretically be $200.
If you therefore, hypothetically, bid $2 per bid, you should make a profit or at least break even due to Google’s “pay what the advertiser below you is bidding”-concept.
Overhead, management costs, etc. should be taken into account when performing this calculation.
Differ your Bidding Based on Match Types
On a side note, I will advise you to always defer your bidding based on match types. Typically set higher bids for exact and phrase match while having lower bids for broad match modifier.
You ideally want to control what keywords your clicks stem from and one of the best ways to do this is by getting most of your clicks from exact match keywords.
After the Honey Moon
After you have set your bids and found your sweet spot, you should let your bids run for 7 full calendar days.
A full week is the minimum that you should allow your keywords to run before taking action or optimizing.
If you optimize based on less than 7 days, you risk that your findings are statistically invalid and that you’re making the wrong decision.
The reason is that the various days of the week can be incredibly varying in search volume, conversion rates and other engagement from users.
If you can’t afford to wait 7 full days then revise after a couple of days. But be weary and know that you’re making decisions on insufficient data sets.
After 7 Days Set Your Bids According to their Conversion Data
After the first 7 days, you should optimize based on a keyword’s conversion data – and nothing else (rough truth yes, but we’re trying to keep it simple).
In the initial example where we calculated our break-even cost-per-click, we assumed that all keywords had the same conversion rate, but nothing could be further from the truth.
Most keywords differ radically in conversion rates and you need to treat them as such. If we use the same formula as before, but slightly altered:
Value Per Sale * Avg. Conversion Rate = Your Revenue-Per-Click
If one of your keywords converts at 8%, the calculation is then very different from the initial 2% conversion rate we counted on:
$100 * 8% = $8 Revenue-per-Click
With this new knowledge, you will be able to bid a lot higher while still generating profits. By differing your bids on keyword level, allows you to maximize your returns on high converting keywords.
What to do if you have No Conversion Tracking?
Start conversion tracking – Today!
These days there are no excuses for not having exact tracking on how well you’re converting. With everything from free conversion tracking via Google to inexpensive call tracking plans, your options to track advertising efforts are endless.
If you have enough money to advertise with AdWords, you should have enough to invest in tracking – Your investment in tracking will pay itself back several times when you start optimizing.
Limited by Budget, Loads of Clicks and Varying Conversion Rates
Especially when you advertise with a relatively low budget in AdWords, you risk having a lot of clicks in low positions and low clicks for each individual keyword.
With limited budgets you should strive after receiving the majority of your clicks from keywords with the highest conversion rates.
Ad Group 1 1% 200 $100 4.3
Ad Group 2 1% 400 $200 3.5
Ad Group 3 5% 200 $100 7.7
Avg. Conversion Rate = 1.75% at a spend of $400.
By increasing the bids for ad group 3 and pausing ad group 1 and 2, you will be able to achieve a theoretical avg. conversion rate of 5% at a $400 spend.
This is by far a lot better business than a 1.75% conversion rate.
Don’t Abandon your Low-Converting Keywords for Ever
Once you have built a solid foundation with steady profits in your AdWords campaign, you should revisit the keywords/ad groups that you paused because of low conversion rates.
Many keywords can convert well for your business if you find the right ad copy and landing page to go with the particular keyword.
With solid profits from the rest of your AdWords campaigns, you can be freer to experiment and find ways to generate a profit from more keywords.
Bid Management can be Tough, but Rewarding
Bidding can be dreadful at the beginning of your PPC campaign and can change for many reasons. If you’ve had two ads running, where one has a conversion rate of 1% and the other a conversion rate of 3%, your cost-per-conversion will decrease by 50% when you pause the poor performing ad.
New competitors, or simply competitors who turn up their AdWords spend, can change the effectiveness of your current bidding, forcing you to revise your bids fast if you want to enjoy continued success.
Your bidding is subject to change every week, and the overall time spent on managing bids can be very high.
This is partly the reason that bid management software’s have gotten the kind of traction they7 have. They take away the time that you would have to spend on bid management and allow you to focus on the more creative part of AdWords.
However, manual bid management definitely has its advantages, and if you learn how to tackle AdWords bid management from the get-go, you have a lot higher chance of obtaining success.
About the guest author: Andrew Lolk is the Chief Marketing Officer at WhiteSharkMedia.com; a Search Engine Marketing agency specialized in Paid Search management for small and mid-sized businesses throughout the US. With 4 years’ experience in Paid Search, SEO, Affiliate Marketing, and Google Analytics, he now runs the marketing outreach program at White Shark Media, Inc. For daily articles, news and advice on Paid Search, please visit our AdWords blog at whitesharkmedia.com.
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