Bidding Strategies for Google Ad Words

The beauty of a manual bidding strategy within Google Ad Words is the control you are given over where your budget goes- down to the keyword.

That’s why Infotel Multimedia strongly prefers to use a manual bidding strategy, over Google’s automated bidding strategies. It allows us to use our clients budget’s in a strategic, (and yes, unfortuantley) mathematical way to ensure high demand keywords can be paid for- and lower demand keywords can take the rest of the dollars. You never want to overpay, or underpay, so a manual bidding strategy allows you to decide exactly what you want to pay for each keyword. You can create the perfect balance of short tailed and long tailed keywords with the right budgets applied to each.

So, How Much Should I Bid?

There are several things to consider when deciding how much to bid, but it really does come down to two main factors.

Your Google Ad Words Budget vs. First Page CPC

There are conflicting opinions in the PPC world about whether ads need to be on page one to be effective. The reality is, you don’t need to have ads on the first page to necessarily be effective, but that will depend on your industry and competition. When you are first starting out, or have a limited budget, you certainly can use placement on page 2 to get some good traction to amp up your future campaigns. Ideally though, you do want to be on page one- and first page CPC bid is the metric you want to look at.

First page CPC bid is determined by how much your competition is willing to pay for that term. Contrary to popular belief, it is not Google that determines this price.

Have a look at what the first page CPC bid for each keyword is, and you will know the cost of a click on your ad by using that key term. Keep in mind, this will fluctuate daily; sometimes, even by the hour- so you will need to update your bids or run an automated Google Script within your account that will change your bids to meet the current price.

Can I Afford First Page CPC Bid?

You will know your daily budget, and most of us will know if we can even pay that much to begin with. If first page CPC bid eats up your entire daily budget, it is likely that you won’t want to bid so aggressively for that keyword. There are exceptions to this rule, of course- perhaps if this keyword converts to a sale 75% of the time, it might be a good idea to do so.

On the whole though, you really want to allow your budget to be spread across a few different keywords (not too many, as we cover here.) Throwing all your eggs into one basket isn’t a good idea- allocating all of your dollars into one keyword will really limit the effectiveness of a Google Ad Words campaign.

What you need to know is your maximum possible bid for any given keyword, and then stack it up to what the first page CPC bid is- can you pay it and leave room for others? Or, is it just too much?

That’s how you build your bidding strategy. So, let’s start from the top.

Finding Your Maximum Bid for any Keyword

We’re going to run though a few key definitions here, so that the below math (we’re sorry!) will make sense.

Grab your pens. Let’s go:

Revenue Per Click: Goal value (how much you want to make) x conversion rate

ROAS: (return on advertising spend) total ad revenue/total ad cost

Break Even ROAS: The return on your advertising dollars that neither makes, or loses you money. Your return equals your costs.

Conversion Value: how much you made off each conversion in your account

Total Conversion Value: how much in total you made from all conversions in your account

Profit Margin: the amount by which your revenue from your ads exceeded the cost of your ads

Conversion Rate: how many conversions your ads gave you vs. how many times they were clicked.

And now we begin. Keep in mind- because its never EASY is it? – you will need to run a few months of Google Ad Words to gather these metrics. You won’t know most of the following right off the bat, so go with your best educated guesses for the first little bit, until you can gather the following info.

The ultimate formula for determining your maximum CPC bid lies in your revenue per click / desired ROAS. 

#1- Determine your break even ROAS.

1 / average profit margin. Let’s say you are selling a product for $60, while it costs you $40 (including product, fees + ad costs.) You make a profit of $20, so with $20/$60, your profit margin is 33%. This means, you keep 33% of your total revenue. Now, in order to determine your break even ROAS, you need to understand what the return on each dollar you spend needs to be in order for you not to lose money using advertising.

If your average profit margin is 33%, your break even ROAS is 333%. This means for every $1 spent in your ads account, you need to make $3.33 in order to remain profitable.

#2- Next, determine your revenue per click.

Total conversion value / total clicks

When you set up your Google Ad Words account, you assign a value to each conversion.

ie. If you receive an online inquiry form, you may be able to perform some analysis of what happens offsite to those users. If 1 in 5 inquiry forms lead to a sale and the average value of that sale over 50 sales is $1,000 you could take an average of ($1,000 / 5) $200 as the value for the inquiry form completion.

Your total conversion value is the total dollars from all conversions in your campaign. If you assigned each conversion a value of $200 and you had 10 in one month, your total conversion value will be $2000. Your total clicks is found within your Google Metrics- let’s say you had 490 clicks in one month. Your revenue per click would amount to $4.08.

#3- Find Your Break Even Max CPC

Revenue per click / desired ROAS

Desired ROAS is actually up to you. Anything above your break even ROAS, as calculated above, will result in a profit- and that profit is up to you. The return you want to get on your advertising dollars is up to your discretion, and should reflect where you are in the advertising game. It would be great to achieve an ROAS of 1000% right off the hop, but realistically it likely won’t happen.

A good benchmark? 300%. For every $1 spent, you make $3. You recoup the cost of advertising $1, get another $1 to throw back into the mix and keep a $1 for yourself.

(We do wish it was always that simple, truly.)

Budget vs. Max CPC Bid

Okay. You’ve gotten through all that math. (Thanks for staying with us. There is no way to make that fun.)

You look at your best keywords, and you see that your daily budget doesn’t allow for them. That’s okay. If increasing your budget isn’t an option, gain traction on cheaper keywords (longer tailed) and focus on increasing profit to the point where you can realistically introduce more profit into your budget and grab those more expensive keywords. Ad Words on a budget can be done!

Google Ad Words Can Be Difficult

It gets overwhelming, eh? Really effective PPC management is a full time gig. But, to help you out a little- we made a spreadsheet of all of the above so you can take the guess work out.

Just ask us for it. We don’t bite.