$5 bids from competitors and still in business?

competitors over-bidding

[halcyonlost]

Hey Guys,

So I've been using adwords for a couple of years with a fair amount of success. I just started browsing through my competitors and I am seeing tons of new websites bidding for #1 positions across all the search engines. Although the sites are well built, they have no contact information or company address, just an application and generic company name. Now there are some big fish in my industry who could easily pay hundreds/thousands of dollars a day to rank #1 so how are these sites paying that kind of money?

The only 2 things I could come up with are:
1) They are lead generation sites.
2) They are start-ups who will burn out in less than a year.

Has anyone seen sites like this willing to pay $3-5 a click in your industry?

Thanks in advance,
Hal

[cyberandroid]

depends on the industry

very hard to comment unless you tell us what industry you advertise to or for

[buckworks]

Please avoid mentioning specifics like that. Stick to general principles.

[cyberandroid]

ok well then yes i have seen it
but because of the way adwords is structured it is absolutely impossible to be sure what they are paying

you could try reducing your bids (adjusting over a day or 2) so your ads show in an average position below 3 (even 3.1 but less then 3)
and leaving it at those bids unless position gets lower (ie. 5) or coneversions are dramatically reduced

i dont like relying on position preferance to do it automatically i like to know when the actual bid is being reduced automatically

and unfortunately that isnt possible with pp except in position 1 ($$)

[jkwilson78]

Also consider that they may have a backend sales funnel.

They lose money or break even up front but make it all back plus some on the backend.

This is how you can kill your competition in competitive markets. Provide a killer front end product that blows the competition away and be willing to lose money on it while profiting from your backend products.

[cyberandroid]

i didnt even consider that

right on

[martinibuster]

That's the maximum bid. They may not actually be paying that much.

[halcyonlost]

Thanks guys for the insights, especially about the backend.

The bid for #1 is $4.60 - $6.70 according to google. Unless there overhead costs were extremely low, it wouldn't be possible for them to stay in business. I have been in touch with people selling leads for this service anywhere from $12.00 - $35.00. So lets say they pay $2.00 a click, and conversation rate is 10%. That would be a cost of $20.00 per lead to them + overhead.

I guess my big fear is that they are rotating credit cards using the $50.00 sign-up bonus or something more sinister.

I guess when I increase my budget I'll find out for sure.