We’ve talked about keywords and what makes a good ad. Now we need to see how to handle the bidding and how to budget a campaign.
Understanding Google’s ad auctions
Google’s advertising is relying on biddings, but it’s not necessarily that the highest bid gets the highest ad rank. An important factor is the ad quality. This means that if two advertisers bid the same amount, the one having higher ad quality will rank better. On the other hand, having the same ad quality, one of the advertisers need to pay more to get the higher rank.
In other words, the higher the ad quality, the higher the rank. You can get top positions while spending less money than your competitors.
Also, the amount you bid is not necessarily the amount you pay for a click. Google uses second price auction, meaning that will charge you only as much as you need to beat the second best bid.
Take a look at this 8 minutes video. It explains very well how the ad auction works.
How much should you spend with AdWords
When setting up a campaign, you need to insert a daily budget. So you might wonder how much you should spend. Well… how much do you afford? Assume Google will consume your entire budget and figure out a monthly amount you are comfortable with spending.
With a monthly amount set, it’s good to do some math, in order to get an understanding of how much you can accomplish. It’s common for small businesses to have a tight AdWords budget, but still have high expectations of the AdWords results.
Look at your keywords lists and calculate an average of the suggested bids. Let’s say it’s $2. This means that for each $100 spent you can hope for 50 clicks. If, let’s say, for each 10 visits you get a conversion, it means that for each $100 spent you will get 5 conversions. So if your AdWords budget is like $150 per month ($5 per day), it’s a start, but most likely it’s not going to be the sales boost that you are expecting.
Also, you will be having several ad groups and at least two ads per group. With a very small budget it will take some time until you are able to test ad variations and improve the quality score.
On the other hand, what is your customer’s lifetime value? In other words, once you acquire a new client, how much money will you be making from him/her? Getting back to the previous example, the cost to acquire a new customer with AdWords is $20. If you are earning more than $20 for each customer, than your advertising is profitable. Customer’s lifetime value is essential in calculating how much you can really afford spending.
To conclude: You need to pay attention to the numbers and make sure you manage to earn back at least the money that you have invested. In the same time, be realistic and allow yourself some time (and budget) to improve your ads. The CPC does decrease once you get a better quality score. If you get discouraged after a month and $200 spent, then you’d better not even start.
Once you get some experience with AdWords you will do the math the other way around. You will know what kind of results to expect and at which costs. So you will start from the goal and calculate the budget you need in order to get there.
Bid strategies for search ads
Google offers a wide range of bid strategies, that fall into two categories: manual and automatic. Manual bidding means that you have full control over the bids, down to a keyword level, while automatic bids are done by Google, in certain boundaries that you define.
Cost-per-click bidding is the most common type of bidding. It’s used to drive website traffic, for multiple purposes like: increase ordering (either online or phone), increase reservations or foot traffic. There are two bid strategies that go with CPC:
- Manual CPC: Has the main advantage that you can adjust the bids as granular as you want. This means that you can optimize your spend by bidding higher on the keywords that perform best.
- Maximize clicks: Is the automatic CPC bid strategy. Use it if you need something more like plug & play. Google will automatically bid with the goal of getting you as many clicks as possible. It’s ok to start with this bidding strategy, especially if you are new to AdWords. You can switch anytime you want to manual bidding.
The remaining bid strategies are all automatic, each focusing on a different goal.
|Bid strategy||Goal and usage|
|Enhanced cost-per-click (ECPC)||Maximize conversions by adjusting the bids up or down depending on Google’s prediction of a click turning into a conversation.
You will need to implement a tracking code on your website so that Google learns which clicks generate conversions. This means that you cannot use this bid strategy for campaigns such as increasing foot traffic.
|Target CPA||Get as many conversions as possible at a cost per acquisition that you set.
Use it when you want conversion for which you can be ROI positive. For example acquiring new clients to order online at a cost that you will be able to cover from their future orders. Requires tracking code implementation.
|Target ROAS||Maximize conversions that will generate a certain return of investment (ROI).
Similar to Target CPA, but instead of focusing on the cost per acquisition, this bid strategy targets the ROI from the conversion. Here as well you need to implement the tracking code.
|Target Search Page Location||Have the ads appear above the organic search results or on the first page for increased visibility and clicks.
Use it if you see that your ads perform better in certain locations.
|Target Outranking Share||Outrank competitor in search results.
This does not mean that you will rank first. Just higher than your competitor. Use this strategy wisely, because you will see all bids going up, regardless of your competitor being in the auction or not.
Next, read about More tips for manual CPC bid.