Google AdWords Bidding Strategy

AdGooroo.com run a monitoring service for PPC advertisers reporting on client and competitor advertising results. As such they are one of the few companies with access to detailed competitive performance data. They have recently published a research report which suggests some general rules for advertisers.

There are 8 positions available on the first page. The higher the position you want, the more you have to pay. On the other hand, the greater your visibility, the more clicks you receive. So how do you maximise profit?

One of the major determinants is the nature of the keywords on which you are bidding. One word phrases being the most general and competitive show a different pricing structure from 3 word phrases which are likely to be specific to a niche market. The incremental premium for one word phrases is greatest at the bottom positions, 6-8. Whereas the premiums for niche phrases rise in comparatively small steps until there is a substantial rise for the top position.

AdGooroo suggest the following rules for those aiming at maximum immediate profit:

1. For most broad keywords, the point of maximum profitability occurs around position 7.

2. If an ad is not profitable at position 7, it will likely not be profitable anywhere on the first page of search results. In these situations, advertisers should lower their bids or consider pausing advertising for the keyword altogether.

3. If Conversion Rate x Avg Order Size > 10 times the CPC at position 8, the bid should be increased until it shows up in the top half of search results. If it is profitable at the new (higher) position, it will likely continue to be profitable regardless of how high the bid price rises.

4. For niche phrases, most advertisers should bid high enough to reach position 2 or 3, but no higher unless tracking confirms that the higher position remains profitable.

Of course those aiming at brand leadership may well put an extra value on the top slot, but they should realise that may harm short term profits. Equally improvements in conversion rate and net profit per order will improve profit at all positions and may even justify premium positions.

In practice, I find the major suggestion is that you start proving the profitability of low positions before bidding more aggressively.

In small niche markets however the disadvantage of this approach is the time it takes to build a statistically reliable result when the number of potential searches is limited. It may be better to forego immediate profit in order to get reliable results on which to take other decisions for improvement.