PPC bidding can be tricky. Placing bids on various PPC keywords is an art and a strategy. Use these three tips and a little math to make the most of your ad dollars.
The most daunting aspect of PPC is the first time you enter the PPC bidding arena. Fans are screaming, the pressure is on, and you’ve got a budget to keep. Make a good PPC bid and you’ll be showered with praise. Make a bad bid, you lose your proverbial shirt.
Okay, it’s not that scary. But you should always enter PPC bidding with a winning game plan.
Does this sound familiar? You’ve gone through the process of writing the perfect ads with awesome landing pages, only to see your budget wash away. Why? Most likely you didn’t set objectives and base your PPC bids on actual business operations. Instead, you probably made best guesses or simply copied what your competitors paid to secure the top ad spot.
Don’t fall into that trap. Before beginning any PPC campaign, perform some analysis to set expectations and give your efforts a better chance of financial success. To do so, you’ll want to first set your budget and execute a few calculations.
Wait – what does bidding even mean? A PPC bid is defined as the maximum cost per click you’re willing to pay for your ad for a specific keyword. This means that your bid won’t be the same for each keyword.
Typically the more competitive the keyword or the more importance it has to your business, the more you’ll pay for it. So if you’re selling apparel, you might bid $0.25 a click for a keyword like “women’s khakis” while only bidding $0.12 for the keyword “women’s size 9 dark khaki pants.”
But before you even think about specific PPC bids, you must set your monthly budget. One way to do so is to take a certain percentage of your revenue and attribute it directly to your PPC campaigns. Thus, if you’re pulling in $9,000 a month in sales and wanted to attribute 10% of that to paid search, then your monthly PPC budget would be $900. Obviously, this number will vary dependent on your revenue and desired PPC investment. There are also other models, but the main takeaway is to always base your budget on revenue – never pick a number out of the air.
Now that you have your monthly budget, drill down your daily PPC spend. So if you wanted to divide your monthly budget by 30 days, your daily PPC budget would be $30. After becoming more comfortable with your campaigns, you can see which days typically perform the best and adjust your daily budget accordingly. You’ll use this number with your search engine ad managers, like Google AdWords, to help determine your daily max spend.
Now that your budget is set, the next step is to actually start your bidding. To help determine what your bid should be, there are three models you can use:
1. In the bidding tool, find the average of the top 5-7 bids and bid near the average. This is a quick, non-analytical way to get some general context on how competitive bids are for this keywords and what you’ll need to pay in order to compete. Keep in mind that bid price isn’t the only variable in your ad placement –ad relevancy and Quality Score are also considered.
2. In the bidding tool, look for large bid gaps. For each keyword, you’ll likely see close bid competition for the top spots, perhaps within a few cents. But between placement #3 and placement #4, there might be a ten cent bid difference. Based on the importance of your keyword, you can make a slightly higher bid to sit at the top of that bid gap.
3. Base bids on your business by using a standard formula. While the first two models are helpful for context, making bid decisions based on mathematics is much safer and effective. Here’s the formula you need to know:
Target CPA X Expected Conversion Rate = Max PPC Bid
- Target CPA stands for “target cost per acquisition,” or the amount of money it costs for a potential customer to take the action you want them to, whether it’s purchasing a product or providing their contact information.
- Expected conversion rate is a variable that represents the amount of people who click on your ad and then perform the desired action. The average conversion rate is typically 1.5%-3% for most industries.
- Max PPC bid, also known as your cost per click (CPC) is the number you’ll use for your bid.
Here’s how to calculate your bid. First, figure out how much profit an actual purchase brings you. You can calculate this by multiplying your average order value and how much profit you make on that order. For example:
$80 average order value x 50% profit margin = $40 profit
Next, take your profit value and figure out what your target CPA is. You’ll do this by determining how much of your profit you’re willing to spend on advertising.
$40 profit x 40% of profit spent on PPC = $16 Target CPA
Now, take these numbers and plug them into the formula above (target CPA multiplied by expected conversion rate, again a safe bet of 1.5% to 3%).
$16 target CPA x 2% expected conversion rate = $0.32 max bid
Remember, your bid will vary for certain keywords, so performing analysis for various groups of keywords will help stretch your buck across multiple ads.
And there you have it! You’re now fully equipped to enter the ring and knock out your competitors, all without breaking a sweat.
Hang on to your hats. Next time you’ll learn how to write killer ad copy to make the most of your PPC bids.
-Matt Winn, Marketing Associate, Volusion
Learn PPC One Step at a Time Series
Part One: What’s the Difference Between PPC and SEO?
Part Two: How PPC Works with Search Engines
Part Three: The Best Keywords for Your PPC Campaigns
Part Four: How to Save Serious Bucks on PPC Bidding
Part Five: How to Write PPC Ads That Convert
Part Six: How to Use Landing Pages for an Instant PPC Boost