A bid calculation is a key component of a pay per click campaign. How does anyone know how much to bid on each keyword? Bid calculations determine the maximum you’re willing to pay for a click in order to maintain profitability. Your bidding strategy should be based on various factors, including the historical performance metrics of a PPC account, average click through rate, average conversion rate and average order value.
Increasing your PPC advertising spend will keep your ads running longer which gets you more views and in turn leads to more website visitors. Increasing your website traffic is the first step, converting those visitors into leads and sales is the second step. As your ad spend goes up, so should your profit. If you increase your ad spend and your profit stays stagnant, you need to analyze your data and figure out why.
Recently, there was the roll-out of Google’s Enhanced Campaigns. They now allow you to increase or decrease your bids based on time of day, day of the week, geographic location or mobile device. Enhanced campaigns give you the capability to reach your target market across any device with smarter ads and effective messaging that is relevant to each unique individual. The ability to display the right creative to the right person at the right time is the key to a successful PPC campaign.
Bid pricing works with enhanced campaigns to give you the opportunity to be more flexible in terms of keyword bidding because you have the ability to manage your bids across device, location and time. For example, you could decrease your bids in a geographic area that you have determined has a lower conversion rate or you could bid higher for users on a mobile device because you have found the conversion rate is higher on mobile vs. desktop.
What Is the Cost-Per-Click?
How much are you willing to pay for a customer to click on your ad that is searching a keyword you have bid on? This is called your keyword’s max cost-per-click or max CPC bid amount. It is important that you utilize all of Google’s enhanced capabilities when calculating keyword bids. Since you are now able to increase your bids during certain times of the day and days of the week within the same campaign, look to see what days have the strongest conversion rate and make sure you have a decent positioning during those days. If you would like a stronger position during those days to drive more traffic, then set the bid adjustment to +10% or +20% so your keywords bids are increased by 10% or 20% during those days.
Understand Your Goals
The most important component of calculating bids is understanding the goal of your account. If your goal is to have a 200% return on ad spend (ROAS), then you will need to use the historical performance of your account to understand what the max cost per click (CPC) you’re willing to pay in order to meet that ROAS. For example, if you get 1 visitor to convert out of every 10 visitors, and the average order is $100, then your max cost per click should be $5, assuming that your conversion rate is 10%.
You can determine the value of your bid calculations by whether or not you’re meeting your account goal. If you have a ROAS goal of 200% and you’re currently coming in at 100%, then you’re paying too much for clicks. You need to lower the cost per click of your keywords or work on increasing the conversion rate of your landing page.
Justin Mayerick, Director of PPC explains bid calculations and the importance of understanding the features of Google’s enhanced capabilities.