how to optimize bids for maximum ROI?

[chemoul]

I'd like to find a way to maximize my return on investment from Adword campaigns.
So far I'm tracking how many sales each keyword generates, calculate my earnings per click (EPC) for each keyword, and adjust my bids based on this information.

For example, if my EPC is 0.40 and I wanted to double the money I invest in my Adword campaign I would set my keyword bid to 0.20

This system isn't perfect of course and doesn't take into consideration the following:
- lowering the bid may result in a lower ad position which may lead to less clicks and therefore a lower overall ROI
- a higher bid may result in a lower EPC, however an increased amount of clicks may result in more sales and ultimately I higher overall ROI (despite the lower profit margin)

Ideally I am looking for a way to track and manipulate my keyword bids so that I can achieve the highest overall ROI. I do not mind lowering my profit margin if it means it will generate extra sales that will result in a higher overall profit.

Is there a software/system that can help me achieve this? I would assume that such a solution would need to track the performance of keywords across multiple periods of bid adjustments and to then compare the performance and overall ROI for each adjustment.

Thank you for your help.

Steve

[Fartman]

I don't want to pick on details, but you say "- lowering the bid may result in a lower ad position which may lead to less clicks and therefore a lower overall ROI". I don't think that's correct, because if they don't click, you don't spend money. In other words: if there's no investment, you can't get a good return on it.

So if you lower your bids, there might be less visitors. However the visitors on your site will have cost less in advertising, so it's really a thin line.

[chemoul]

You're right, it was a bit late when I wrote this post.
What I meant to say is overall profit, not ROI. So less clicks, would equal less sales and potentially less profit.
I'm saying potentially because if I pay less per click, the overall profit might still be higher due to a higher profit margin, despite less sales.

So the real question is, is there a tool that analyzes number of clicks, vs. number of sales vs overall profit, and comes up with the optimium CPC per keyword?

[smallcompany]

If you are any good with Excel, you can create a macro that would automatically calculate that for you, whenever you add new data.

We’ve been looking for a similar (automated) tool forever - all what you’ve said without “recommended” bid. Just to know the ROI on each keyword.

When I said “automated” I meant automatically importing data from AdWords, MSN and Yahoo from one side and then sales (if you are merchant) or commissions (if you are an affiliate) from other side. Click… get the ROI for each keyword.

So far we found one product claiming doing that, but all should go through “their” server which was unacceptable for us.

Anyone who has resources would get good return on making something that would do this… as long as it can be installed locally.

[BigSpender]

Hi Chemoul,

You should stick with the sleep deprived thinking. ROI is much more important than gross profit.

If you want to maximize gross profit, bid as low as possible. This will ensure that your cpc is its lowest and given that you should have a constant conversion rate, you will have a maximum gross profit.

If you want to make the most money, maximize your ROI. That's a measure of how much money you make as a ratio of how much you have invested. Set an ROI goal; 100% ROI in this business is not excessive. Massive cash flow is a good thing, not a bad thing if you are maximizing your ROI.

Consider investing $1000 and turning it over 10 times per year at 10% profit. That's 100% ROI, but only 10% margin. Then consider investing $1000 and turning it over 5 times per year at 15% margin. That's only a 75% ROI. Would you rather make $1000 per year profit or $750 per year on a $1000 investment? I'll take the lower margin any day.

[chemoul]

You're right Bigspender, but let's not get too caught up in definitions.

The question still is whether there is an automated tool that will allow me to calculate the best possible CPC for individual keywords in order to achieve the maximum ROI.

[shorebreak]

Chemoul,

There are a number of solutions out there & which generally fall into two types:

1) Self-service bid management tools - these are for the most part web-ified Excel spreadsheets that look at impresion/click/cost/revenue/margin data and spit out suggested bid changes. Atlas Search, DART Search, Bid Buddy (UK) and Efficient Frontier Express (disclosure: where I work) fall in that camp. Of those tools, some automate the making of bid changes via SE API's, and some don't. The big short-coming of *most* of those tools, in my opinion, is that they only look at data keyword by keyword, which is to say that they don't look *across* keywords to figure out how best to allocate spend across a keyword set. Also, virtually none of the self-service bid management tools were built to do any sort of data modelling, which prevents them from being able to accurately tell you what the trade-offs are between max CPC, effective CPC, resultant bid position, traffic and conversions. Essentially, they don't do the math and force you to make your own guesses.

2) Outsourced SEM solutions - if you believe that an SEM agency with their own technology can do a better job than you, it might be worth it. Doesn't seem like you're thinking along those lines, though.

-Shorebreak

[chemoul]

Thanks shorebreak for your comments.
I'm wondering whether there are any systems that can capture that kind of data (different CPC over time vs clicks, cost, sales, ROI) and then compare it to make a bid suggestion that is more than just a guess?

[Booster]

all the tools shorebreak stated are well known and are running for a long time now in the industry. a new product launched not long ago by media boost and is called adwords booster. it optimize profit using advanced mathematical modeling. you can try it out, it brings 30+ % more in net profit, sometimes even more (discloser: i work there)

[johntext]

Do you think this is a good strategy? I want to bid on a favorite keyword phrase.. it's expensive so I've bid:

$10 for exact match

$1 for broad match

I'm bidding less for broad match figuring that if they're not putting in the exact phrase, then it is worth less to me.

What do you think?

[eWhisper]

Here's a very simplified formula that's a good starting place (especially if you don't have other hard costs to take into account):

(Revenue per conversion / desired ROI) X (conversion rate) = Max/Preferred CPC

[jam2005]

>>We’ve been looking for a similar (automated) tool forever - all what you’ve said without “recommended” bid. Just to know the ROI on each keyword.

SearchCenter from Omniture will do this - if you're willing to pay $500/month to use the software (in addition to the fees you'll have to pay for their analytics software).