Are those advertisers maintaining a positive ROI based on long history, CTR, and the new "quality score" or is it possible for someone new to enter such a market and get high placements with decent CPC?
If it's the latter, some pointers, or resources would be highly appreciated.
Then get your ad groups set up and let them run for a while. For some high-traffic markets, you can get your test results in a few hours. Let it run to, say, 200-300 clicks, see if you get any results. If you get lucky and see huge results right away, it'll be easy to determine a maximum value per click, after which you can jump right to the top of the list. If the results are anything less than awesome, just gradually pump up your bids until the ROI levels off. That's where ad optimization comes in, and once you increase your CTR and QS by fine-tuning your keywords and ad groups, start the process over again by slowly increasing bids and seeing if your ROI increases.
Repeating this process over and over may take a while, but it's better than jumping in full-force and paying $5 a click for products that don't sell. I mean, let's say you're trying to market a high-ticket item; let's say it's an e-course package that sells for $297. Now, your commission on a product like this would probably be at least 50%. If you figure on a 1% conversion rate, that means every 100 clicks should net you about $149, which in turn means you can bid $1.49 per click and probably not lose any money. So I'd start out bidding $0.50 and see if I get any results. This way you can let it run up until three times the clicks that you'd get for $1.49, and you've got more accurate data. If you aren't getting any traffic, just keep bidding up until you hit $1.49, but always stop at 200-300 clicks (more if you've got the capital, that just means more accurate data). If you see a better conversion rate than 1%, it's easy to figure your safe max CPC.
After that, it all depends on how skillful you are with AdWords. If you've been doing it a while, I'm sure you know how to increase conversions and CTRs.
Is it possible that, for example, for someone to need to bid $1.49 as you said for a position that someone else has been there for a while that's only bidding $.10?
Because, following competitors for some time does let you know if they're making profit, but since you don't know how much they're bidding (and if the CPC can vary so much as in example above), maybe you're not getting the whole picture.
If you want to check out what some of these potential competitors are willing to pay per click, exactly, then check out the bid tool on YSM. (overture) It's not adwords, but you'll see that in competitive markets the bids get really high, and yes, the profit must be there too for those who are paying these bids over a long period of time. (Note that some high bids come directly from the merchants, and they may not always be turning a profit at the super high cpcs, they may just want exposure and dominance. Look at the affiliate bids.)
I'm in a highly competitive niche myself. I like the advice above, it's pretty much how I work. Start with small bids, go higher once you have more information. I wouldn't pay more than 10 cents a click when I started, but over the years my bids have gotten exceedingly higher as I've gained more confidence in my ability to convert and in the products I sell.
With adwords, you may never know what the ad above you or below you is paying, and in the end it doesn't really matter. It's your own ROI that matters most.
Are those advertisers maintaining a positive ROI based on long history, CTR, and the new "quality score"
Not me. My quality score is apparently awful as my minimum bids are rising all the time. I'll hang in as long as there's a positive ROI.
If you want to check out what some of these potential competitors are willing to pay per click, exactly, then check out the bid tool on YSM. (overture)
Just a word of warning about the bids on YSM. People there play a game where they try and scare off new competion. It goes like this:
The top bid is 15.00$ the next higher bid is 5.00, then 4.95, 4.90, etc. Even though the #1 guy is bidding 15$, he only pays 5.01 per click, but people take one look at the 15$ top bid and say "Whoa! Too competitive a niche for me. Better look for some other keywords. They end up with a big list of junk mispelling keywords and the big 15$ guy ends up with the high converting money KW.
Of course, once the new YSM pricing model kicks in, this will be history.
