How much should I bid for a Pay Per Click search term? What is a good bid strategy for PPC campaigns?

The first concern for a newbie running a PPC ad campaign is—how much should I pay for my keywords? In this article we will take a look at possible bid strategies and how best to decide on bid prices.

How do I decide on my maximum Cost-per-Click (CPC)?

First of all, you will need to identify how much you can afford to pay for each search term. Most advertisers base this on sales or profit figures while others depend on industry averages. For example, if you sell a product for $60, make a profit of 30% and your conversion rate is a conservative 1% i.e., for every hundred clicks, if you get one sale, this is how you would calculate your Max CPC.

1.  On profit margins– You will have $18 of profit per sale to use as ad spend over 100 visitors. In other words, you can afford to spend 18 cents per click.
2.  On revenue spends–If you aim to spend 20% of your revenue on PPC ads, you can spare $12 per sale. Spread over 100 visitors, this gives you a Max CPC of 12 cents per keyword.
3. On an industry average–This involves taking an average of the top 4-5 bids on Overture.

Remember that the Max CPC will fluctuate with time and you will have to make adjustments according to your actual conversion rates as well as the CPCs of your competitors.

What PPC bid strategy should I follow? 

Overture ranks their ads based only on the bid amount, while Google’s rankings depend both on click-through-rate (CTR) and bid amount. Hence it is prudent to adopt different strategies for different search engines based on their systems. Since each product and each campaign is unique, there is actually no best PPC bid strategy to follow. But the experiences of advertisers have revealed that certain approaches like those listed below usually work well. 
1. Avoid bidding for the top spot. The #1 position is always the most expensive and it has been found that most surfers click on the first ad without even bothering to read the title.
2. Surf the bid gaps. If the top 3 bids for a search term are $1.50, $1.49 and $0.75, the difference between the 2nd and 3rd bids is called a bid gap. In such cases, it makes more sense for the advertiser to bid for the 3rd position, paying $0.76 as opposed to the top positions which would cost him $1.50 or $1.51.
3. Keep adjusting bids based on their performances. Continuously monitor the ads on the search engines as well as their various partner sites. You may need to change the bids as per the performances and ranking on each site.
4. For Google, use your Max CPC or a little less (if possible) to get into the positions between 3-5 and monitor the ads for a couple of days. If the CTR is good, then you can drop your CPC further.
5. Create multiple, focused ad groups and structure your campaign to enable easy bid management. If cheaper search terms are clubbed with expensive ones, you may end up bidding higher for these than what is required.
6. Use negative keywords to help improve the CTR of your campaign.
7. Use inexpensive keyword variations like common spelling mistakes, plurals etc. They can save you loads of money!
8. Drop poorly performing keywords.
9. And finally, avoid bidding wars!

Spending too much time on PPC bid strategy may be detrimental to your campaign. It is best if you bid within a comfortable range and then make changes as per the ads’ performance and your return on ad spend (ROAS).

Feel free to discuss this article in the ReveNow Forums.