Pay per click marketing is just designed to suck money out of your pockets. Google and Yahoo! especially have stacked the deck against new advertisers by forcing them to pay higher prices because of their lack of history. So managing your bids is a critical piece of the pay per click puzzle. Manage your bids wrong and you will go broke quickly. This page represents Work Media's thoughts on how to manage pay per click bids.
What's On This Page
Two Major PPC Bid Management Strategies
ROAS-Based Bidding Approach
ROAS ("Return on Ad Spend") is defined as the total dollars generated by the advertising divided by the cost of the advertising. In an ROAS-based bidding approach, your goal is simple - to bring in as many dollars as you can RIGHT NOW for every dollar you spend. This can be accomplished by: 1. increasing your conversion rate, or 2. decreasing the cost of your clicks.
Increasing your conversion rate requires you to do things like split-test lots of ads, test different offers, and test different landing page copy. Decreasing the cost of your clicks requires having tight control of your keyword bids and focusing your budget on the cheapest keywords (all else being equal).
The formula for determining what you can pay for a click with this strategy is as follows:
Maximum click cost = profit per sale X conversion rate
For example, if you make $100 profit on every sale, and your conversion rate is 1%, then you can afford to pay $1 per click ($100 X 1%).
Customer Lifetime Value Approach
If you know the lifetime value of your average customer, then you can use that as a gauge of how much you can afford to bid for keywords. This is a more advanced strategy and requires that you have a strong grasp of your customer base and, ideally, a long-term strategy of making repeat sales to your existing customers.
With a lifetime value-based approach, you are willing to lose money on the initial sale in order to get a customer in your system. You do this knowing that you will recoup the loss and turn a profit long-term by selling more items to the same customer.
The formula for determining what you can pay for a click with this strategy is as follows:
Maximum click cost = average lifetime value of customer X conversion rate
One thing you need to keep in mind is that what you bid does not necessarily equal what the click costs. In many instances, what you pay will be less than what you bid, giving you some room to bid more aggressively. But be careful or you could get burned.
If you would like some professional help in managing your pay-per-click marketing campaign, contact Work Media at 888-299-4837 or email Info@WorkMedia.net.
ROAS ("Return on Ad Spend") is defined as the total dollars generated by the advertising divided by the cost of the advertising. In an ROAS-based bidding approach, your goal is simple - to bring in as many dollars as you can RIGHT NOW for every dollar you spend. This can be accomplished by: 1. increasing your conversion rate, or 2. decreasing the cost of your clicks.
Increasing your conversion rate requires you to do things like split-test lots of ads, test different offers, and test different landing page copy. Decreasing the cost of your clicks requires having tight control of your keyword bids and focusing your budget on the cheapest keywords (all else being equal).
The formula for determining what you can pay for a click with this strategy is as follows:
Maximum click cost = profit per sale X conversion rate
For example, if you make $100 profit on every sale, and your conversion rate is 1%, then you can afford to pay $1 per click ($100 X 1%).
Customer Lifetime Value Approach
If you know the lifetime value of your average customer, then you can use that as a gauge of how much you can afford to bid for keywords. This is a more advanced strategy and requires that you have a strong grasp of your customer base and, ideally, a long-term strategy of making repeat sales to your existing customers.
With a lifetime value-based approach, you are willing to lose money on the initial sale in order to get a customer in your system. You do this knowing that you will recoup the loss and turn a profit long-term by selling more items to the same customer.
The formula for determining what you can pay for a click with this strategy is as follows:
Maximum click cost = average lifetime value of customer X conversion rate
One thing you need to keep in mind is that what you bid does not necessarily equal what the click costs. In many instances, what you pay will be less than what you bid, giving you some room to bid more aggressively. But be careful or you could get burned.
If you would like some professional help in managing your pay-per-click marketing campaign, contact Work Media at 888-299-4837 or email Info@WorkMedia.net.
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Great Stuff on Amazon
Scientific Search Engine Marketing: Strategies For Maximizing Your Pay Per Click Return On Investment
Scientific Search Engine Marketing presents rational, scientific strategies for managing pay per click campaigns. It is based around two principle ideas: that split-testing is the only way to determine the most effective keywords, ads and web page copy; and that you should focus your pay per click budget on those keywords that generate the most profit per click or the lowest cost per conversion. This book shows the techniques that professional search engine marketers use to pick the best keywords and allocate budget accordingly.
Amazon Price: $25.00 (as of 07/13/2009) 
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What are the best books on the subject of pay per click bid management?
"Pay Per Click Marketing A-to-Z" - PPC Domination - secrets that you didn't know existed, Unleashed! by Manuel Ortiz Braschi
Most comprehensive guide to PPC advertising and on more...0 points
"Pay Per Click Profits" - Make Money With Your Very Own PPC Search Engine! by Manuel Ortiz Braschi
Tired Of Creating Tiny Little Mini Sites And AdSen more...0 points
Pay per Click Blog Posts from Google
- PPC Bid Management Misunderstanding #1: Manual Bidding vs Automation
- PPC Bidding: Requirement #4: Ad level bidding This is part 4 in a series on the required attributes/capabilities of a PPC bidding platform.... PPC Bid Management: Requirement #3, The Feedback Loop Part 3 of a 10 part series on the ...
- Gaining Buy-In for Your PPC Account Plans
- Columnists cover topics such as bid management, managing multiple campaigns, ad and landing page quality issues and other subjects. The Paid Search column appears weekly at Search Engine Land.To get this column via email or feed, ...
- PPC Bid Management Misunderstanding #1: Manual Bidding vs Automation
- There's an awful lot of hooey out there regarding bid management systems. Some of it is a product of limited experience (?automated bidding wastes money? claimed one recent and thoroughly misguided article). ...
- Maximum Website Promotion through PPC Bid Management
- The way to start PPC bid management is to identify first the maximum cost per click (CPC) you are willing to pay for a given keyword or phrase. CPC varies from time and even search engine to search engine too. ...
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Company Bio
Jerry Work of workmedia.net was working in Memphis as a financial analyst at one of the top business appraisal firms in the country when... (more)
Jerry Work of workmedia.net was working in Memphis as a financial analyst at one of the top business appraisal firms in the country when... (more)
