

How To Bid For Cost Per Click Campaigns - ezl
http://blog.ezliu.com/how-to-bid-for-cpc-campaigns-aka-stop-doing-adwords-wrong/

======
annon
This article does a good job of covering the basics of bidding, but most of
these things should be obvious. In performance marketing, the goal is to know
how much money you are going to make for a given visitor before that visitor
enters your site. Then, you can use any number of bidding models to reach
maximum profit.

What is really lacking here, is that Adwords is not just a basic auction
system. If I have a Max CPC of $1.00, and you have a Max CPC of $0.85, it is
not certain that I am going to be at a higher ad space than you.

There are a number of variables that Google takes in to account to determine
the order of placements in an auction, and it obfuscates all these variables
in to something called a 'Quality Score', which publicly operates on a integer
scale of 1-10. Google uses the quality score to manipulate auctions to perform
better for google, not the advertiser. Here's some of the most important
factors:

CTR: If you're holding down position one, but nobody is clicking your ad,
google is not making money. Just like you as a performance marketer, Google is
not trying to get the maximum profit per individual click. They are trying to
get the maximum volume of profitable clicks. One key here is to not just dip
your toe in to a keyword. If you overbid (usually to a loss) out of the gate,
you will get substantial volume faster, thus giving you a better CTR and a
higher quality score. Once you have solidified your position in the auction,
you can then ratchet down your bid to a profitable level.

Page Relevancy: It is important that your landing page is relevant to both the
keyword you are bidding on, as well as your ad copy that you displayed. Google
AdsBot will index your landing page using algorithms similar to it's organic
bot. Page load time is a major factor here as well. This is google playing the
long tail. They want to make sure that whoever clicked on the ad is happy with
the experience they get on the landing page, so that they will in the future
click on more ads. If a user keeps ending up on junk pages, they are less
likely to click on ads or use google in the future.

Account History: This is in my opinion, one of the most frustrating parts of
adwords, and it's impact seems to vary wildly from vertical to vertical. The
age of your account and ads can play a major role in how much you are paying.
How much of an impact? I've seen ads that are 3-4 years old cost $1-2/click,
and an entirely new account at a new company cost upwards of $10-15/click on
the same keyword. The more volatile the space, the bigger the disparity is.
There is very little information out there about how/why this is, but here is
my theory: The majority of people using adwords at scale are using it entirely
for performance marketing. As such, if you get knocked out of a top position
on a high volume keyword, it can have a significant effect to your bottom
line. If a company has consistently been on a keyword spending money every day
for 2-3 years, you would assume that they are going to stay there if they keep
their position. If you allow a newcomer to come in and spend to a loss for a
while, disrupting the positions of established players, there is not a
guarantee that the established player will ever recover on that keyword. And
since this new player has been spending so much, they can't afford to keep
operating and have closed up shop. The net effect is less money for google.
Again, this comes more in to play in volatile markets, but is straight up
market manipulation.

\----

As far as questions regarding technology to optimize SEM is concerned, Google
has mostly prevented this from happening by having one of the worst API's I
have ever worked with. They will make marginal changes and sunset the old
version after only a couple months. Many of their practices seem somewhat
openly hostile to developers working with their API. While being good
performance marketers, data is our friend. We want as much of it as we can
get. Google, however, wants us to only have just enough information to keep
spending money. It is not their goal for you to have a 100% optimized
campaign. They know there are junk queries that are worth less, and want you
to keep blending those in with those that are performing, so that they can
make more money.

Anybody that's curious about their tech should take a look in to what it takes
to build something that uses the Adwords API. The fact that they can have such
an awful API and tools for something that makes 70%+ of their revenue is
amazing.

------
ariwilson
I'm surprised this article didn't mention Google's Bid Simulator, which allows
you to see a very good estimate for the number of clicks you can receive for a
given keyword/creative pair (or adgroup, campaign) at bids you're currently
not using:

[https://support.google.com/adwords/answer/2470105?hl=en](https://support.google.com/adwords/answer/2470105?hl=en)

More speculatively, Keyword Planner allows you to add a bunch of keywords with
bids to your account and see what kind of traffic you might expect:

[https://support.google.com/adwords/answer/2999770?hl=en](https://support.google.com/adwords/answer/2999770?hl=en)

Obviously this is less accurate since you don't have a lot of account history
with these keywords, you haven't selected creatives yet, etc.

Disclaimer: I've worked a bit on all of these tools.

~~~
ezl
Bid simulator is nice, but what I really wanted to highlight was the existence
of profit maxima and the fact that it can be determined experimentally.

In retrospect, Bid simulator is probably the best thing to use for a starting
estimate of the keyword profit optimum (if you don't have data and just use
your global conversion rate across all keywords.)

Obviously google has the MOST information and is in the best position to
optimize on advertisers behalf, but among SEMs I trust and respect, I've found
that there tends to be a distrust for how Google applies the information and a
belief that despite the inferior information, a more hands on approach tends
to outperform Google's built in tools.

For example, Google doesn't use the keyword when determining what ad to show
in its ad rotation optimization. [http://searchengineland.com/optimize-for-
conversions-using-t...](http://searchengineland.com/optimize-for-conversions-
using-the-adwords-rotation-option-66516)

------
JeffL
Bout 4 years ago, I was spending about $4000/mo on Adwords, with some nice
results. About 2% CTR on the ads, most of which were banner ads on the content
network, average about 20 cents PPC. About 50% of the people clicking on the
ad would download our game. About 25% of the people downloading the game would
run it+create a character. About 5% of those who ran it would eventually pay a
monthly subscription. About a $35 customer acquisition cost, and I basically
put all free cash into Adwords. Only thing that slowed it down was an average
time of 3 months between joining the game and becoming a paying subscriber.

Fast forward to about a year or two ago, every metric for traffic from Adwords
has plummeted. CTR's are 0.5%. Percent of people who hit the landing page and
download are less than 1%. Percent of people who download and run the game to
character creation is about 10%. Percent of people from Google who end up ever
paying anything is near 0%. The cost of customer acquisition via Adwords has
basically approached infinity, and I've basically stopped using Adwords
altogether. Nothing I've done has seemed to get things right for Adword
traffic, and that includes following all the advice from them. Meanwhile,
traffic from Reddit converts just fine, there just isn't that much traffic
from Reddit available.

Anyone else have experience while a huge degradation of the "quality" of
traffic from Adwords? I'm at the point that this article mentions where no
amount of bid manipulation can make PPC advertising via Google profitable.

~~~
marwatk
Almost the exact same thing happened to us around May of last year. What had
been a hugely profitable campaign for more than 8 years tanked in a matter of
days. We still haven't figured out all the reasons or totally recovered, but
there were a few big ones we noticed, at least for our market/campaigns.

\- Content clicks on mobile devices became a huge portion of our clicks, and
they're pretty much worthless (99%+ errant clicks that would immediately
bounce, if they showed up in our analytics at all). We disable all mobile
content clicks now until they add swipe to click or something to make them
even a little useful.

\- "Synonym" matching seemed to grow way out of control to things not remotely
related. We mostly fixed with the broad match modifiers (+ before keyword)

Those are the only two we've really nailed down, and they helped make it at
least profitable again, but still not anywhere near what is was before the
week it tanked.

------
petenixey
I've only run a couple of CPC campaigns but even as a reasonably clued up and
very technical person I struggle to understand what's going on.

Is there software out there that effectively closes the loop between adwords
and analytics and help me optimise my search through keyword and bid-space?

I would expect the system to work by letting me "seed" it with a few search
terms and adverts, set in the acceptable margin per product and then let it
search the space to find the optimal keyword portfolio and bid-amounts. Does
this exist?

 __EDIT __

As some commenters have pointed out, there are lots of bits of software out
there that do this. However they all have either a snake-oil feel or a snake-
oil feel combined with an enterprise price point. Is there an "Optimizely for
adwords"? It all seems far too difficult at the moment.

~~~
ezl
there are general techniques for "seeding" search terms.

Obviously the best approach is to have someone manually do it who understands
the space to initially seed it. However, its hard to get a really nice long
tail of keywords that way.

The way to do something like this in an automated fashion would be to just
find the competitor products and use something like SEM Rush to deduce what
keywords they're hitting, then use a keyword expansion tool to expand that
list.

After the initial setup, you should always be spending some of your adspend on
expanding your keyword list. for example: 80% of your budget goes towards
"exploit", which tries to perform as optimally as possible, and 20% of your
budget goes towards "explore", which is basically letting Google and users
give you hints about what words might be profitable.

To do this, create another campaign with broad match keywords (google matches
a bunch of crap to these). Your script should regularly take the queries that
match the broad match terms, then either:

(1) negative match it so you never see it again, for bad keywords

(2) exact or phrase match it to be managed by the CPC bid optimization method
described in the post.

[http://www.wordstream.com/products](http://www.wordstream.com/products) for
example does some of this (and google itself will give you keyword
recommendations)

~~~
j_s
Another keyword match tool is HitTail, but its effectiveness is diminishing as
Google locks down search keywords:

[http://www.hittail.com/](http://www.hittail.com/)

------
blazespin
This is a simplification of the problem. The issue with CPC bidding is that
you're in a dynamic marketplace with competitors entering into it everyday.
Maximizing profit is rarely what you want to do. Sometimes you want to bid
before the maxima (to avoid encouraging competitors to bid it up), sometimes
you want to bid after the maxima (to acquire customers before your competitors
do).

It also assumes there is only one smooth curve that goes up to a maxima and
then down again. In reality, there are local maximas that are worth
considering.

------
qeorge
Don't forget to segment your visitors by their CPC bid!

You'd be surprised how differently a visitor who clicked through to your site
from the first ad spot behaves compared to visitor who comes from the 7th or
8th ad spot. For one thing, people who are clicking the lower ads tend to be
more price conscious!

So if you have e.g., $20 per day to spend, it might be better to buy 5 clicks
at $4 each than 20 clicks at $1. You could very well convert half of the
expensive clicks and none of the cheap ones!

~~~
davemel37
In over $5,000,000 of paid search spend managed, I have never seen this to be
true. The perception of this is universal to all clients, but the numbers
never backed this up. Would love to see a case study that shows it's true.

[http://adwords.blogspot.com/2009/08/conversion-rates-dont-
va...](http://adwords.blogspot.com/2009/08/conversion-rates-dont-vary-much-
with-ad.html)

~~~
calbear81
I would think the opposite might be true. The person who is likely to click
all the way down has already tried a bunch of links on top and their purchase
intent may be much higher than the casual shopper who isn't as determined to
find the best price. Also, the more price conscious shopper is not necessarily
the worst shopper if you have the lowest price!

~~~
davemel37
In theory you are right, but in practice that is rarely the case. See the link
I posted above to Google's case study and explanation.

This is one of the biggest myths in the SEM world, most likely a result of
paid search managers charging a percentage of ad spend, and therefore
motivated to find justifications to bid more and spend more. (I am not saying
this is a conscious effort, but you certainly can't deny the validity of the
bias... and the fact that there is a better explanation to why the data might
mislead you. (the better converting ads, end up in higher positions.)

------
gk1
All of this is correct, but there's a monster hiding behind this paragraph:

> "It’s probable that unoptimized ads/landing pages will show that a lot of
> keywords have NO profitable bid opportunities. By improving conversion rate,
> quality score, ad copy, or any number of things, it’s possible to change the
> shape of the ad keyword profit curve, which necessitates recalibrating the
> keyword bid."

Your bid is just one of many factors that affect your cost-per-click and cost-
per-conversion. When you're optimizing only a single variable you're only
climbing the nearest hill, not the nearby peak. And climbing that little hill
can cost you thousands of dollars in test campaigns.

------
jamiesonbecker
I developed a system called Ad-Curve that helps you crunch the numbers.

(I'm working on a better explanation, but in the interim check out the
"Mendoza Pottery" case study which walks through the calculations.)

It's really handy at doing things like crunching whether or not you'll lose
money with a given CTR, for instance, and also contains an explanation and
suggestions for most of the key variables.

Too bad it doesn't write headlines for you, too :) [http://ad-
curve.com](http://ad-curve.com)

Email me directly (jamieson _at_ ad-curve.com) if you have any questions

------
jmotion
One thing I'll tell you.. never ask for the Google support teams help: all
they tell you to do is bid more. It's almost as if they're on commission.
Google PPC is slowly becoming more and more expensive - and Google are slowly
putting more and more adverts on the site.

~~~
esw
My experience with the Google ad reps has generally been pretty positive. The
only complaint I have is that it seems like they want to spend 30 minutes on
the phone with me every other month.

~~~
jfoster
Once they've consulted with you, they probably have their performance tied
with your account and the accounts of anyone else that they have consulted
with. Naturally, they would want to check in regularly if that is the case.

------
manuelflara
As someone with barely no knowledge of AdWords, I found this very interesting.
Does anyone know of any software that helps automate / efficiently manage
AdWords campaigns? I read a few years ago about this startup created by ex-
Googlers that did just this, but apparently even before launching (or shortly
after that) was bought by either Google or Twitter, not sure. Damn shame that
never actually came out. Anyone remember which company I'm talking about?

------
eloff
Reminds me of a story from Robert Kiyosaki. A best selling book and a best
written book are two completely different things. If the goal is to make
money, then you want the first one. It applies equally to software. As
engineers I think we have a natural aversion to the dirty business of
marketing, but if your goal is profitability it's even more important than
having the best code. Just look at MongoDB for example, they're great at
selling. But, in my opinion anyway, their product is inferior to some of the
alternatives. That's not to say a great product shouldn't be your focus, but
how you sell it is every bit as important (more so in most cases.)

------
bemmu
...

500 clicks * 5% CR * $10 Conversion Value – 500 clicks * $.25 CPC = 125.00

750 clicks * 5% CR * $10 Conversion Value – 750 clicks * $.375 CPC = 93.75

...

This list made it seem like bidding higher makes all clicks more expensive.
Would bidding $.375 CPC not also get you those 500 clicks @ $.25 CPC that you
were getting before?

I was under the impression that your bid is the highest you are willing to
pay, so you should bid up to your earnings per click.

~~~
dangrossman
Unless there was nobody bidding more than you, or nobody whose (bid * quality
score) was better than yours, you won't get those 500 clicks at $0.25 anymore.
Your ad will now appear higher than some other ad it appeared below in
searches, and you'll pay what it costs to outbid that other advertiser.
Increasing your bid almost always results in increasing your average CPC.

If you are bidding on searches where there's no competition, bidding more
almost always means paying more for no benefit, too. I have bids on my
searches related to my sites' brand names, which nobody else advertises on.
When I set a CPC of $1 per click, Google would charge me something like $0.65
per click. When I dropped the bid to $0.50, they'd charge me $0.35 for the
same clicks on the same placement. If I bid too little, they won't show the ad
at all.

~~~
bemmu
Thanks for correcting me, this can be a very expensive thing to be wrong
about.

------
Pitarou
This is a basic application of the ideas in the first week of a microeconomics
101 course.

Maybe I'm being an arrogant dick, but if you don't already intuitively get
this stuff, you really should not get involved in any kind of business that
depends for its success on adwords, A/B testing, customer segmentation, and so
on.

