Calculating Bid Limits

The first step in analyzing any PPC account or account element is to establish the economic parameters applied to manage PPC ad spending. This analysis can be applied to broad product groups, campaigns, or individual elements of a PPC account.

Our analysis is framed in terms of quantifiable CPA and CPC-type metrics, allowing us to weave into the basic account maintenance process a continuous comparison of actual CPA versus targeted CPA and actual CPC versus Bid Limits.

Granularity of Analysis

The granularity of analysis for a PPC account is a matter of a professional PPC Manager’s judgment. Although we often begin analyzing an account at the campaign level, this is not generally appropriate for online stores. Even for service industries, it is often necessary to evaluate specific elements of an account when they apply to significantly different types of services or when performance of some keywords or ad groups differ significantly from the average.

In calculating bid limits, it is generally necessary to analyze distinct services and products separately.

Special Treatment for Star Keywords

Aside from distinct services and products, it is sometimes necessary to analyze ad groups or specific keywords separately (meaning to calculate a bid limit separately for an ad group or keyword). When a particular keyword, or group of keywords are performing substantially better than the campaign or ad group in which they belong (usually measured by cost/conversion), then a PPC Manager would likely move the keyword, or group of keywords into their own ad group, or possibly even campaign. In the case of a separate ad group, this would be done in order to more closely tailor ads and landing pages to the star keyword(s). In the case of a Star Campaign, this would be done to provide a basis for pouring fuel onto the star keyword(s) by unfettering any budget constraints which might have otherwise contributed to a loss of impression share.

Repair the Dogs or Shoot them

If particular keywords are under-performing, then a professional Ad Manager may analyze the underlying reasons for the poor performance, and if the reasons cannot be remedied, then the Dog keywords or possibly even ad groups are paused.  If the quality score is poor but the keyword is relevant, then fix it!  If the quality score is good, the keyword is relevant, and it’s still not performing to expectations, then consider targeting lower ad positions (lower the bid).

Velocity of Re-evaluation

A professional PPC manager is applying her judgment and experience continuously to determine the velocity of our analytical cycle as it applies to each level and element of an account. Bid Limits are reviewed and possibly revised at least every reporting period, and the comparison of market CPC and bid limits is considered daily, as bids are revised.

Exceeding Bid Limits

The only rational basis for ever exceeding Bid Limits would be when the underlying assumptions for the bid limits do not apply to a specific element of an account (which means the bid limit calculations are not calculated to sufficient granularity).  This could occur for a star keyword, for example. When this occurs, a separate bid limit must be calculated for the star keyword (broken into a separate ad group as described above). In other words, if the bid limts don’t reflect reality, then revise them (requires manager approval).  If they do reflect reality, then never exceed Bid Limits.  If you can’t maintain targeted ad positions and comply with bid limits, then inform your manager!  Either the account is in a Non-competitive mode, or the ad position targets require revision.

Bid Limits are not Maximum Bids!

Sometimes clients confuse our Bid Limits, with Google Adword’s Max Bid input. These are not the same thing. Interchanging the two will incur an eventual loss, and can incur an immediate loss when several competitors in an ad space adopt such an approach. When several competitors in an ad space set their default bids to their bid limits, any windfall profits associated with PPC advertising will immediately accrue to Google! This is the primary point of our “Buffer” analysis! Don’t squander your buffer! Preserve your buffer! Enhance your buffer!

C O O P E R A T E !!

Don’t rile competition in your ad space

For most ad spaces, there still exists today a comfortable buffer between Bid Limits (results of our analysis) and the market CPC (actual bid amount for the keyword phrases). This difference bolsters the “R” in an advertiser’s ROAS. When each participant in an ad space cooperates to preserve this “R,” then PPC returns accrue to those competing in the ad space. While this fact may seem obvious, it’s not unusual today to encounter ad spaces which have been at least temporarily compromised by two or more Ad Space Cowboys who may have failed to mind their arithmetic, or worse, chosen to ignore it.

Bid Limit Calculation Example

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, so 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, mkt 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.

1) Economic Condition = Noncompetitive

“Some other places were not so good but maybe we were not so good when we were in them.”

Ernest Hemingway

“PPC Advertising Doesn’t Work For Me”

Ever hear ex-advertisers complain that Adwords was a waste of money? Most likely, that company wasted ad dollars by advertising a poorly developed website or pursuing some other flawed internet marketing strategy. They likely spent it fast before they came to realize that enterprise value had been destroyed by purchasing clicks which didn’t convert to new business.

When an advertiser or new account manager finds himself on the Non competitive node of our PPC Ad Management Process Diagram, a common initial reaction is “Despair!” Well, there is some relative element of truth in that reaction, but in most cases, it doesn’t have to be a fatal ad space condition. Indeed consider yourself lucky for having discovered the condition before busting the bank on underperforming ads.

Improve Performance

Our experience shows that the competitiveness of all ad accounts can be improved. Some have the potential for massive improvement, others for only marginal improvement. If you ask us to review your ad account, in connection with providing a quote, then as part of that process we are going to offer our candid assessment of the potential for improving your account. If you’re already doing a great job managing the account, then we won’t hesitate to say so. The last thing we wish to do is to raise expectations which we cannot confidently meet. If we can recommend some improvements, we’re going to mention those. If your ad space is quite competitive, then our assessment will mention that.

Evaluate Your Ad Space

Some ad spaces are hypercompetitive, and crowded with ads placed by savvy ad managers. Others are hypercompetitive, and crowded with ads placed by buffoons. [FYI, the second ad space is the truly dangerous one!!]

Others still remain open for virtual homesteading. The important thing before you get started is to understand the competitiveness of your ad space, potential ROAS, potential for improvement, and then to manage your own account in a manner which makes you richer not poorer.  Sometimes this involves making the most of the hand you’ve been dealt, not necessarily the hand you wish you had been dealt. Most often there exists sufficient room for improvement to move you to a happier spot on our PPC Ad Management Process Diagram.

Compare Your Site, Compare Your Web Offers

Sometimes an ad space is so competitive, that only the strongest survive.  In such conditions, before spending another dollar on Adwords, take a critical look at your website and web offers.  If they don’t stack up, then improve them.  If you’re not willing to do so, then put your money in your pocket and walk away.

Analyzing Failed PPC Accounts

There are a number of possible reasons why you may not be competitive within your ad space. As previously mentioned some of the factors impacting your competitiveness are endogenous, meaning they relate to things under your control, and some are exogenous, meaning they may not be directly under your control.

Conclusion

If you wish to improve your competitiveness, then focus on improving your endogenous factors. If you improve the first four, then you’ll expect a higher quality score, which will directly impact the financial performance of your account.

Sometimes if you stay on your toes, you might also identify an opportunity for exploiting or influencing exogenous factors!

[B] Spending PPC Budget? Yes or No

Determine if a client is spending the daily budget by reviewing an Adwords report, or by reviewing the online Adwords interface for the past week or so. Often it’s not a simple yes or no answer. If the budget is $75, and the campaign is hitting the budget 5/7 days, then we might answer a qualified “Yes.” Anyway, Google loves informing us when an account could spend more (”Campaign Budget Alert”), so this condition is sometimes  easily determinable from just a glance at the online Adwords interface.

[C] Impression Share? High or Low

Find impression share by running an impression share report. Beware about the sensitivity some types of revisions can have on impression share. When an account is running over 75% impression share it should be carefully trimmed, not hacked! So keep in mind the degree to which impression share might be considered high or low. On the ends of the spectrum, it’s easy: less than 10% = clearly low; over 90% = clearly high.

Make sure the report dates are representative of the account’s current condition. If you’ve made significant changes a week ago, then the impression share report should show activity only for the period since that event.

[C] Impression Share? High or Low

Find impression share by running an impression share report. Beware about the sensitivity some types of revisions can have on impression share. When an account is running over 75% impression share it should be carefully trimmed, not hacked! So keep in mind the degree to which impression share might be considered high or low. On the ends of the spectrum, it’s easy: less than 10% = clearly low; over 90% = clearly high.

Make sure the report dates are representative of the account’s current condition. If you’ve made significant changes a week ago, then the impression share report should show activity only for the period since that event.

Adwords Experts

Condition 2 = Disengaged

Get in the game!  Don’t sit on poor ad positions, below market bids, and an underspent ad budget.

For Adwords Experts, this PPC condition is coincident with poor ad positions.  It’s possible that for some advertisers, poor ad positions (double and triple positions) as a planned sort of ad position strategy might work.  It might be particularly interesting to consider as an odd ball sort of strategy when a primary ad space is hypercompetitive, or overrun with buffoons.  Most often however, a disengaged condition correlates with a poorly maintained account.

When we first started expertly managing adwords accounts four years ago, we could buy clicks in many industries for nickels, dimes, quarters.  Some of those same ad spaces have moved forward to dollars and even fivers.  Some accounts which used to purchase clicks for $5 have since moved north of $25 or $50.    Any Adwords expert falling behind on bid maintenance over this period might now inadvertently be purchasing triple digit ad positions.  We generally take exception to positions which fall off the first page, because it can result in the arbitrary display of ads.  This contrasts with being in a bargain hunting mode where we are selectively purchasing those terms and elements which offer the best value.  No doubt, sometimes a disengaged approach can result in the display of ads for only long-tail keywords, but unless the account is structured to exploit this approach, it is unlikely to be trending up on its quality score.

Aside from all that, most often when we find an account which is disengaged, we find that it has not been managed by an expert and its overall condition is a shambles.  In such cases, it may require a complete restructuring, new ads, and an overall critical reevaluation.  In such cases, historical data might offer only limited value, and we would expect to reforecast conversion rates.

A Star Campaign is Not Disengaged

Star campaigns are a special case.  A common mistake for New Adwords Experts is to misdiagnose a Star Campaign as being Disengaged.  A common tactic for managing star keywords is to put them into their own campaign, and set the budget to double average potential ad spending, in order to achieve a 100% impression share.  Such accounts are not disengaged–how could they be since they have a high impression share?  As long as such campaigns are not losing more than 5% to 10% impression share, you are unlikely to improve economic performance by increasing bids, certainly not at the ad group level.  Under such circumstances, you might possibly consider increasing bids selectively for any outlier keyword positions, or possibly breaking them into new homogenous ad groups.

How to Fix Disengaged Accounts

Sometimes when we bring a brand new account live, it starts out as being disengaged.  This is because we have set the ad group bids at sort of ball park rates, and they may have been set too low for ads to display, especially taking into account a neutral quality score.  A common misperception by new Adwords experts is that fixing a disengaged account requires a lot of time.  While it might be true that a disengaged account may have other problems, if it doesn’t, then fixing it can take literally moments and the impact of the remedy can be felt almost immediately.  To remedy a disengaged account, just increase the bids, normally at the ad group level.  If the account is significantly disengaged, then increase the bids significantly.  Once you’ve done so, you’ll have to monitor and re-evaluate the economic condition continuously to understand and manage the impact of your revisions.  If you identify an account which is in a disengaged mode, then be sure you read all correspondence and of course the Road Map before deciding to SHOCK the account with a bid increase.  Once youv’e done so, if you still believe that the account warrants immediate attention, then consult with your supervisor and recommend your remedy:

“Hey Irene, this account is super-disengaged; it’s spending less than 10% of its budget and earning less than 10% impression share.  I’m going to increase the bids by 25% and see if that fixes it.  Do you agree?”

Beware Underwater Bids

Raising ad group level bids can cause a ton of keywords to go underwater.  Underwater bids are defined as those keyword bids which are lower than the respective ad group level bid.  For Adwords experts, identify underwater bids using the editor; select an ad group and sort the keywords by the bid.  Delete any bids which are less than the ad group level bid, in order to revert them to the newly-raised default ad group level bid.

Document the Impact!

Once you have permission to SHOCK a disengaged account with a significant bid increase, then be sure to document the matter in the Road Map, and explain daily thereafter the affect of your bid increases, and the subsequent steps taken to reach a new equlibrium.

Sample Questions

What are the symptoms of a disengaged account?

How would an Adwords Expert fix a disengaged account?

How would an Adwords Expert fix low impression share?

When would Adwords Experts increase keyword bids?

When would an Adwords Expert increase ad group bids?

What are underwater bids and how do I find them?

How do I fix underwater bids?

PPC Condition 3: Starved for Traffic

When you find yourself on this node in our diagram, think CAUTION! If you’re dealing with a mature account, look back at the history of what has been tried in the past to the extent possible. Why are we not able to efficiently spend the client’s ad budget? As we step out and search for other ad opportunities, we risk spending ad dollars unproductively. Since most bargains are often long tail keywords in core ad groups, stepping into new ad space most often generates only marginal returns, or worse, destroys value.

The velocity of our management cycle revs up to a whir, when we add new advertising account elements.

Solutions for Starved for Traffic

Things we can consider to generate more traffic may include:

• Broaden match types
• Add more ad groups (products, services, or KW ideas)
• Add more keywords (relevant KW’s, of course)
• Broaden geo scopes
• Broaden ad types
• Pause worst performing ads in each ad group (with low CTR’s)
• Improve targeted ad positions (increase bids)
• Turn on Content Network
• Add new managed placements

Many of the above can cause the account to perform worse, not better, so careful monitoring is required. Remedial action is required whenever any of the above elements fail to meet conversion expectations and ROAS hurdle rates.

Finite Number of Relevant Searches per Day

With search marketing, there exist a finite number of prospects within your geographic market who are typing in your relevant search phrases. You can’t force more people to search for your core search phrases. The best you can ever do is to present your ad to everyone who searches (at your targeted ad position). Considering this, for many advertisers which are earning a high impression share, but still feel they are starved for traffic, their best approach may actually be to modify their own expectations (decrease their budget!!), and focus on improving conversion rates in the core search element of the ad account.

Pay Per Click Manager

PPC Condition 4: Bargain Hunting

As Pay Per Click Managers, when we evaluate a new client and our analysis lands the client on this node of the PPC Ad Management Process Diagram, it represents Nirvana!  It’s the safest and brightest spot on our “How to Manage PPC” Diagram.

The easy solution for an account in Bargain Hunting mode is to simply increase the budget, and if an Advertiser is clearly earning an attractive Return on Ad Spending (ROAS), then recommend an increase!

Often, the situation is not so straight-forward, and in those cases, if the account is structured efficiently, the only thing required to improve performance is cost cutting / pruning.  That’s what bargain hunting often involves, simply eliminating the worst performing elements (and sometimes displacing them with lower volume / lower cost, higher return elements).

Reduce CPC!

Intelligent bid maintenance is so important, particularly for accounts in Bargain Hunting Mode.  In Bargain Hunting Mode, a Pay Per Click Manager knows there are more searches for relevant terms than he has chosen to purchase.  It’s for this reason that increasing bids for accounts in bargain hunting mode, even at the keyword level, almost always results in a deterioration of the ROAS.  For an account in bargain hunting mode, an increase in a bid at the keyword level is justified only when the keyword is clearly generating an exceptionally high number of conversions.  If a keyword is not a clear star, then reduce the keyword’s bid or pause the keyword.   If you can systematically reduce bids for all but the best performing keywords, then you will purchase more clicks for the same ad dollars and this will improve ROAS.

Create Star Campaigns

For accounts in Bargain Hunting Mode, create star campaigns.  Place the star keywords in such campaigns, along with the best performing ads.  Target better ad positions for star campaigns, and set the budgets high enough to capture 100% of impressions.

Lose Impression Share due to Rank, not Budget

If your account is in bargain hunting mode, then you’re losing impression share for all but the star campaigns.  If you faithfully pursue a bid maintenance strategy in accordance with the previously described method, then you will effectively migrate lost impressions from those lost due to budget to impressions lost due to rank.  Track this daily, and keep reducing bids until you’re losing the lion share of your impressions due to rank.  By selectively reducing CPC, you’ll get more clicks out of your ad dollars and likely increase your number of conversions.  Keep your eyes peeled for any new stars and shuffle those into the star campaigns as you identify them.

From time to time, reevaluate–compare your actual results with your targets.  If you’re beating the targets, then consider recommending a budget increase.  Reevaluate the economic condition.

Buy Long-Tail Keywords

As shown in the following diagram, maximizing number of clicks which we can purchase, based on a fixed ad spending budget involves moving from the high volume / high cost keywords on the left to lower volume, bargain keywords on the right.

Buying long-tail keywords

The above diagram illustrates the search ad space for Auto Painting and Body Shop Repair in Des Moines, Iowa.  There are a little over 600 searches per day in Des Moines for relevant keywords.  Purchasing the entire market of 600 searches would cost an average of $1,256 per day.  Doug’s Body Shop can afford a budget of just $400 per day.  On the left are the high traffic expensive root keywords like “body shop” which cost $5.00 per click.  On the right are the long-tail keywords, like “nissan auto body repair east des moines” which costs $0.10 per click. The average cost for the entire market is $2.00 per click.

Given his advertising budget, Doug can purchase 83 clicks for root keywords on the left or 320 clicks on the right.  Assuming they are all equally relevant, our experience shows that the long-tail keywords on the right usually convert at a higher rate than the root keywords on the left.  Clearly the long-tail approach will allow Doug to get the most out of his advertising dollars.  If Doug is willing to enhance the granularity of the account by breaking the long-tail keywords into finely grained ad groups, and pause the expensive keywords, then he will significantly reduce his costs, and to the extent the more specific keywords generate a higher click through rate, then he will also improve his Quality Score.

Bargain Hunting:  Tactics for Improving Performance

Some of the tactics which might be considered in the bargain hunting mode are:

• Recommend ad spending budget increase (if high ROAS)
• Tighten match types
• Kill content network
• Add negative keywords
• Decrease bids (don’t increase bids!!)
• Place best performing keywords into separate campaign, with plenty of budget (create a star campaign)
• Place high traffic suspects in separate campaign, and starve them with budget
• Eliminate all (short too general) high traffic, low return keywords
• Modify the account to target only long tail keywords
• Identify best performing days or times of day to run ads
• Tighten geographic scopes
• Convince the client to increase the daily budget

The severity of the pruning or revision should be determined by how low the impression share is.  Don’t underestimate the effect small changes can have on the account.  An impression share of over 70% involves snipping, not hacking.

Content Campaigns

For some accounts, content advertising represents marginal spending; if it’s underperforming, and you decide to just turn off entire campaigns, the impact can be to bounce the campaign from Bargain Hunting condition to a Starved for Traffic condition.

The proper solution for content is to evaluate the ROAS for content advertising at the ad group level, and then:  1) if content is providing value, recommend that the budget for the account be increased to accommodate the content ad spending; 2) if only certain ad groups are providing value, then pause the duds, at the ad group level; if the entire content campaign is performing poorly, then throttle spending significantly and try to fix it for a month or two!  Content campaigns often react favorably to continuous improvement.

PPC Condition 5:  Ad Spending Equilibrium

Ad budget equilibrium might be the result of a lot of exceptionally good work, it might result from laziness, or it might be luck. For example, one could achieve Ad Budget Equilibrium by tossing together a shabby account, letting it rip, then setting the budget equal to the average daily spend.

Equilibrium is Not the Goal!

In some cases, this node on our diagram can be a very challenging spot for an ad manager, because whatever changes you implement will unbalance the equation. Yet often changes are required.  If your ad account is in spending equilibrium, then the obvious solution is to expand scope, as a means of tapping into new sources of  potentially valuable traffic and leads.

If the account is super-refined and optimized, and is the distilled end product of a lot of things tested and tried, then you might consider restraining yourself to maintenance and regular analysis, but in such a case, the prospects for massive performance improvements will be quite limited.

Destination or Just a Rest Stop?

Most often Ad Spending Equilibrium is a superficial condition which can easily be remedied by expanding scope.  If the account is in a shambles, then you’ll have to suffer the disruption of refactoring it, and that is sure to land you on a different node on our diagram.  Even if it’s nicely organized, it may not be optimized.

Remember, the targeted economic condition isn’t Ad Spending Equilibrium; it’s Bargain Hunting!  Expand your horizons, find new advertising opportunities, create greater value!

For remedies, refer to Starved for Traffic.