Margin by which Bid Limits exceed Market CPC?
[Decision Node A: Measured on spectrum, High or Low]
Assessing Viability of PPC Advertising
The Decision Node [A] in our diagram establishes whether our calculated Bid Limits exceed the Market CPC. This is a quick test of whether PPC advertising is going to work easily for a prospective advertiser.
A great buffer would be when our bid limit is $1200 and we find that we can achieve our targeted ad position with a bid of just $2.24. While that may seem like a ridiculously high buffer, we actually do have accounts which have similar buffers. A decent buffer would be when our bid limit is $7.75 and our market CPC is just $2.24. As long as a buffer exists (bid limit exceeds Market CPC), then theoretically, any ad spending will generate a positive ROAS.
History May Not Foretell
When a professional PPC Manager meets someone who says, “I tried Adwords, and it didn’t work for our company,” you’ll notice her shaking her head and smiling. Every week we analyze prospective PPC accounts as part of our free quote process. We quite often encounter accounts which have been created or managed by novices or imbeciles, and those most often generate a negative ROAS for the Advertiser. In such cases, a massive overhaul of the account will most often remedy the condition, and our proposals describe the specific steps we will take to improve the accounts.
When we encounter a professionally structured and managed PPC account with no buffer, then we know it’s going to be a tough account to manage. In such cases, our first recommendation may be to significantly reduce ad spending. Sometimes, even with lower spending, it may not be possible to eek out a positive or attractive Return on Ad Spending (ROAS). When all else fails, we might even consider pulling the plug on PPC ad spending altogether. Although we sometimes abandon ad spaces (paused campaign spending and even discontinued advertising entire products), it’s quite unusual to encounter an Advertiser for which pay per click spending could not provide a positive ROAS.
Velocity of Analysis
In evaluating whether an attractive buffer exists between bid limits and market cpc’s, it should be understood that, especially initially, the calculation of Bid Limits depends on the estimation of conversion rates. Therefore, it is not always possible to determine the existence of an adverse condition prior to spending the first advertising dollar. For that reason, and also because the Market CPC is set by an auction (and is sensitive to exogenous competitive forces), it’s important to continuously reassess the condition of any ppc account / campaign, including the refactoring of bid limit calculations (revised bid limits are subject to the same manager reviews as the initial bid limits).
Forecasting Conversion Rates
For a new client, we forecast a conversion rate based on our experience for the industry, conversion types, conversion process, and our Competitor Analysis. [Sometimes we may even be forced to apply our shot in the dark conversion rate par value of 1%.] The point is, our initial forecast is imprecise at best, and requires frequent revisiting during the settling in phase of a new account. Over time an account generates sufficient statistics to move towards a more precise estimate of the conversion rate for each distinct element of an account. Generally by the time we complete the first Monthly Report for a client, we have already improved our initial estimates about conversion rates, which we include in our PPC Manager Roadmap.
Conversion rates, product prices, market cpc, and other factors generally differ by product, requiring bid limits by product.
When specific account elements earn unique conversion rates, then we would normally place those elements in separate campaigns and calculate unique bid limits for those elements.
Conversion rates are not static, and may be improved or even adversely impacted by changes to a number of endogenous and exogenous factors, as more fully described in “Noncompetitive within Ad Space.”
Since many of the factors impacting conversion rates are constantly in flux and under revision, the conversion rate, and the Bid Limit for every primary element of an account require regular reevaluation.