I decided to turn down my bids to 8 cents. Now my average day is costing me about $200 AND my average profit is the SAME as when I was paying 15 cents. While the sales have dropped, my expenses have dropped and I am maintaining the same profit over the month. I really don't care what my sales are, just my net profit.
At the lesser bid I am still maintaining a CRT similar to the higher bid.
Note: I realize this may not work for everyone but it has worked for 5 campaigns I have.
Just thought I would share this. Anyone else have something to share?
But you can just guess, which KW should convert well and try to go higher with your bid and then check, how much your expenses go up and how much the sales go up.
Then try the same with another word atc.
given the following two choices: 1) spend $1000, get 6,666 visitors and $140 profit OR 2) spend $200 get 2,500 visitors and $140 profit, i would personally go with option #1.
you get all that extra exposure for free; hopefully, someone will like your site and link to it, others will bookmark it for later visits. that will have long term benefits.
You might want to do some analysis at the keyword level. You probably have some keywords that do better at $0.08, others that do better at $0.15, some that aren't worth $0.05, and some that are worth far more than $0.15.
For me, I've found that it's best to bid to a specific ROI. Divide the total earnings for the keyword by the number of clicks for that keyword, then adjust to a desired ROI. For instance, with $100 in earnings from 250 clicks, that's $0.40 per click. To get a 100% ROI, you should bid no more than $0.20. If another keyword only gets $20 in earnings from 400 clicks, that's $0.05 per click. No matter what you bid, you won't get a positive ROI on that keyword. If you looked at those together, you would have $120 in earnings from 650 clicks, which is $0.18 per click. You might have bid $0.09 on both, which would have lowered your profitable traffic and raised your unprofitable traffic.
Dropping max cpc often means nothing changes (rank, CTR) but how much you pay per click.
Rob.
Those are some very low margins, spending all that for just $140, don't you think so.
I thought so too especially if he was spending $1000 to make $1140.
Spending $200 to make $340 is a lot better.
given the following two choices: 1) spend $1000, get 6,666 visitors and $140 profit OR 2) spend $200 get 2,500 visitors and $140 profit, i would personally go with option #1.
I would go for option 2 because its ROI is a lot better for the same profit amount.
I would then try to duplicate this campaign for another product and then keep doing it.
Now you can reinvest the saved $800/day in four, similar, $200 ventures.
I would go for option 2 because its ROI is a lot better for the same profit amount.
ROI is a useful metric, but it misses a lot. The argument for option 1 should not be dismissed.
Now you can reinvest the saved $800/day in four, similar, $200 ventures.
Too bad that's so much easier to say than to do. :-)
Diversifying would have the signficant benefit of risk reduction. MovingOnUp's point that merchants sometimes fail to pay is a serious one, so it's wise to consider how you'd cope if something went wrong that way. Churning the same amount of money with an assortment of merchants instead of just one would make you less vulnerable to merchant payment problems.
On the other hand, if one is using a charge card with a good rewards program, the points from an Option 1 approach can add up nicely. The value of that might make it worth pushing harder than normal ROI calculations would indicate.
You can determine your MCPC, by the Incremental Change in Advertising Costs divided by the incremental change in clicks .
An example might be if you are bidding $1.00 on keyword widgets, and it generates 100 Clicks. Suppose that you increase your bid to $1.10 and it generates 110 clicks, then the MCPC would be ((110*110)-(100*100))/(110-100) or $21/10 or $2.10
Suppose your profit per click is $1.50, then in this case you would be loosing money by increasing your bid, because the MCPC is $2.10 and your profit per click is only $1.50.
Let me give a more detailed example.
CPC Traffic Ad. Costs Total. Profit MCPC
$0.10 10 $1.00 $14.00 $0.10
$0.20 20 $4.00 $26.00 $0.30
$0.30 30 $9.00 $36.00 $0.50
$0.40 40 $16.00 $44.00 $0.70
$0.50 50 $25.00 $50.00 $0.90
$0.60 60 $36.00 $54.00 $1.10
$0.70 70 $49.00 $56.00 $1.30
$0.75 75 $56.25 $56.25 $1.45
$0.80 80 $64.00 $56.00 $1.55
$0.90 90 $81.00 $54.00 $1.70
$1.00 100 $100.00 $50.00 $1.90
$1.10 110 $121.00 $44.00 $2.10
$1.20 120 $144.00 $36.00 $2.30
$1.30 130 $169.00 $26.00 $2.50
$1.40 140 $196.00 $14.00 $2.70
$1.50 150 $225.00 $0.00 $2.90
So Basically what this example illustrates is that at a certain stage bidding more, increases profitability, but bidding beyond a certain level starts decreasing total profitability.
The optimum bidding point in this example is $0.75 where the MCPC is equal to the profit per click.
My guess in this specific example you have found the tail ends of the curves. You will probably find a better point between these two extremes.
This idea is an extension from economics. In economics the Profit optimization point is when Marginal Costs=Marginal Revenue.
What this means to adwords, is that you can use the Bulk Bid Changing Tool to examine different scenarios. E.g If i increase my bids by 10%, What effect has that on my revenue and profit. I.e. A typical scenario might be, you are spending $1000 a day on advertising. Suppose your order costs are $8,000 a day and your revenue is $9,500, so your profit is $9,500 - $8000-$1000 or $500. Suppose you try increasing your bids by 10%, and it causes a 10% increase in traffic, and hence orders.
Your order costs and revenue increase by 10% to $8,800 and $10,450 to give a net profit of $10,450-$8,800-$1,210 = $440
So increasing by 10% is a bad idea.
Sullivan Three Laws of PPC Profit Optimisation
1. Profit Optimisation is reached when Margin Cost Per Click=Profit Per Click
2. Marginal Cost Per Click > Cost Per Click
3. Best Bid = 0.5 * Profit Per Click, assuming a linear relationship between bid and traffic.
ROI is a useful metric, but it misses a lot. The argument for option 1 should not be dismissed.
Yes, that's why I qualified that statement by saying "for the same amount of profit". Why would you spend 5x more to get the same profit?
ROI becomes less important if the absolute profit is higher but not in this case.
Option 1 is too risky as MovingOnUp rightly pointed out. Things happen and if that trusty merchant suddenly miss a payment, good luck to you.
3. Best Bid = 0.5 * Profit Per Click, assuming a linear relationship between bid and traffic.
Sorry to take a wonderful post and focus on only one part of it, but I wanted to add some real-world experience to this.
There is seldom a linear relationship between bid and traffic.
What your equation would suggest is essentially a 100% ROI. I use the AdWords API to maintain a consistent ROI, and I've tried adjusting my ROI up and down to see what point maximizes the total profit for me. The sweet spot for me is between 200% and 250% ROI. It may vary for others, but that's what I found for me. (Based on just the two data points for Zeus, it looks like the sweet spot for him is more like 100-150% ROI.)
There are numerous people here critizing me. How about actually sharing something instead of telling me what YOU think I am doing wrong.
The return I have gotten is far better than any bank has ever given. I enjoy doing this and it works my mind.
The difference is, of course, the risk factor. Higher risk, higher return.
Criticism is good for growth so do it with a positive mind :)
There are numerous people here criticizing me. How about actually sharing something instead of telling me what YOU think I am doing wrong.
I think you may be taking the responses wrong. I don't see anyone criticizing or telling you what you're doing wrong. I see a lot of people sharing what has worked for them, how they determine the optimal bid, and what they would do if they were in your position. Just about everything in this thread is constructive and helpful.
I find this fascinating because I just experienced this with a campaign. I had to raise the bids but profit went down. Your post explains it all.
I loaded the data into a spreadsheet and it is a lot of fun to play with.
Your theory very related to Micro Economics theory of Optimisation is very interesting and I hope I will find some time to study it.
