Calculate Bid Limits

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

Average Sale Value$200.00
Targeted Acquisition cost as % sales15%
Targeted acquisition cost$30.00
Conversion rate click to sale2.5%
Bid Limit$0.75
Average CPC$0.42

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