Anyone else see diminishing returns?

[BDuns]

The more I spend on AdWords, obviously I get more traffic and more conversions. What I am finding though, is that for every extra dollar I spend, I get less and less back.

It seems like I can run a campaign spending $10,000 a month and get 100 conversions. If I spend $20,000, I don't make 200 conversions...it'll be more like 150 conversions. When I increase to $30,000, I don't make 300 conversions...I get 25 more for 175.

It's like the more money I throw at it, the sloppier Google gets in matching my ads to queries. Nothing else changes - not the match type, negatives, nothing...just my conversion rate.

[Quantam Goose]

This is really simple. I ramp DOWN as conversions cost more. At $20,000.00 your conversions are costing $133.33. You must have a hell of a product. I adjust every week - reducing or raising campaign totals in proportion to revenue. It is the ONLY way to deal with the misterious keyword creep.

[jkwilson78]

Different ad positions convert better than others for every single keyword/ad so if by spending more you mean raising your bid cost this could be the reason.

Some keywords/ads get great conversions in position 5 yet the same keywords/ads perform poorly at position 3.

Strange stuff but it happens.

[irish_john]

Think in terms of Marginal cost per conversion

[Israel]

My spend and profit vary greatly from day to day. Can't put a finger on the why?

[Lokutus]

I have a problem with new advertisers who come in and just have to outspend everyone for the top ad position. This tends to drive p-c costs up for everyone. These same high-bidders then blow their wads in a month or two only to be replaced by others with the same attitude. My ads used to appear in the 4th or th slot on the first Google SERP. Now they have slipped to the second page because I know what I can afford to pay without losing money.

Do you guys see the same type of short-term competitor?

[jam2005]

Get some good analytics software and track conversions. Test landing pages, ads, and keywords until you find the bid that is profitable for you. It's difficult because there are so many variables. You just have to keep a close eye on things.

[jam2005]

>>I have a problem with new advertisers who come in and just have to outspend everyone for the top ad position.

How else are new advertisers supposed to get enough traffic so that Google can judge the quality of their ad? My experience is that you bid high at first and then lower your bid over time as you gain some history.

[Lokutus]

"My experience is that you bid high at first and then lower your bid over time as you gain some history. "

My experience is that most of these guys don't stick around long enough to learn the subtleties of the system. They just blow a ton of money to be top bidder for a couple of months and then disappear completely.

[Essex_boy]

True on both counts, this isnt an easy game to play.

[Wlauzon]

When there are hour-long infomercials on late night TV selling "courses" on how to get rich on Google ads, then you know that things have gone horribly wrong.

And I saw one last night....

[dpd1]

That's pretty much what ruined eBay... When the "make money at home" seminars start, you know it's time to start thinking about other things. I do think there's a big enough turnover of businesses starting, failing, bailing... that it's enough to gum up the whole system and ruin it for everybody. I have competitors that I know for a fact are selling products at a loss. I know what the materials cost to make the products, and they are well below that cost per unit. Why? Who knows... Some semi retired people just want something to do... Other people are simply terrible accountants and literally have no idea how much they are making, and how much they're spending. But as long as there's a steady supply of those people coming and going, it makes things a lot more difficult for the legit people actually trying to make a living.

[PPC_Chris]

Well of course thats the case. This isn't stock investing where you will make the same rate of return no matter how mush you spend/how many shares you have.

When you double your spend where is the money going?

If it is to make your current bids higher then you are paying more per click and if thats the case then obviously each conversion is now going to cost more (assuming the same conversion rate). In most, but not all cases, higher placement for the same term will lead to a lower conversion rate.

If the extra spend is going to pay for more terms then these new terms you are spending the extra money on are not converting nearly as well (at least on a CPA basis) as your original ads.

Imagine if all you needed to do was double your spend to get double the conversions? I would have retired long ago after my company was spending millions per day in AdWords. Unfortunately, there is only a finite amount of searches that we can convert into sales at a profitable level.

[edited by: PPC_Chris at 4:52 pm (utc) on July 17, 2007]