Optimal Bidding Strategy

[OrangOutang]

We are a small business and we are going to try our luck in Google Paid Search. We have gone through all the required details in order to start our campaigns. But what we felt that we strictly needed a business friendly bidding strategy for optimal profit.

After considering several methods, I myself made one and now really want to do a feasibility analysis of the formula.

We took 5 keywords which we’d be bidding on. Added the suggested bidding rate and found an average. We take it as $20.
So if we expect 1% visit to Sale Ratio or Conversion Ratio (100 clicks to get one new customer), we’d be paying:
$20*100=$2000

So we can assume that we’d be spending $2000 to get one new client. On the other hand we can also say that this figure is what most businesses are willing to pay to get one new client.

Now since we don’t have any fixed price product and our business solely runs on the success fee we generate based on each success, if the average success fee is $5000, our net profit remains $5000-$2000=$3000.

I’m completely new in this SEM industry but have decent experience of the SEO world. So I’d really appreciate of you could help me modify my bidding strategy.

[instand1]

The max. CPC is not the real CPC, it is a maximum. The real cost per click will be lower.
You can not look at the bidding strategy in isolation: The wording of the ad, the landing page, the keyword matching (broad, phrase or exact), the use of negative keywords.
Limiting the campaign to a local market (one province or only one city could be a good strategy for the beginning.)
If your keyword is that costly, it would be worthwhile to hire an adwords consultant to set up a campaign for you.
Have a look at this thread:
[webmasterworld.com...]
Starting a campaign in such competitive field without expert know-how would be a waste of money.
But make sure that the expert sets up the campaign in your name so that later on you can continue to run the campaign on your own or switch to another consultant.
The idea that you can expect 1% conversion Rate could be optimistic. Be prepaired that at least initially it could be much lower. Try to find a niche in your market to avoid the full confrontation with the established competitors.

[RhinoFish]

Tight tracking and proper attribution are also going to be make or break factors for you. High cost items with a low Conv Rate mean that learning as you go, is going to be painful - you'll spend a ton, you have a slow feedback loop (making changes and optimization require greater patience), and people often get on the phone to buy things over $500 (fractured feedback loop). Get somebody with experience on your team, even if it's temp help to get out of the gate.