Keyword Bidding

Most online shoppers turn to search engines when looking for a specific product or service. Paying to have your ads listed in search engine results — paid search advertising — is a great way to gain exposure on the Web. Companies that are new to the process should take time upfront to understand how much they are willing and able to spend on paid search to ensure they get the results they are looking for. Bidding for the right keywords is one of the most important parts of the paid search advertising process and can help make sure that your site gets in front of the right people. The amount of money you’re willing to pay for the words and phrases you associate with your ad determine its position on the results list, so spending your money wisely on the right ones can help ensure your success.

Ideally, you’ll bid on multiple low-cost, highly targeted keywords that will generate a high click-through rate. But deciding what certain words and phrases are worth to you is a science. Thinking strategically and crunching a few numbers early in the process can save you from bidding on keywords that are outside of your budget or too generic to give you the results you need.

How to Determine Your Bid
Here are two ways to calculate how much you should bid on a keyword for a particular item. For a basic, per-sale return-on-investment (ROI) calculation, you have to determine how much each product you sell is worth. For example, you’re selling a digital camera priced at $200, and your company makes a profit of $50 every time a camera is sold. If you’re willing to spend 30 percent of that profit on advertising, that would be $15 per sale. Most businesses generate an online conversion rate of 2 percent in paid search campaigns, so your bid price on a particular keyword should be no more than $0.30.

• The online conversion rate from web site visitor to customer. How many of the people visiting your site through a link in your ad actually make a purchase?
• The average overall dollar value of each customer. How much do those customers spend? Is it enough to cover your advertising expenses?

These factors can depend heavily on your company’s products and services. For example, if you have very consumer-oriented, competitive products, the conversion rate may be quite high while the per-sale profit may be relatively low. On the other hand, if you offer a higher-priced, specialized business service, your conversion rate may be low, but the profit-per-conversion could be high.

Analyzing that data will help you decide how much to spend to attract the visitors that are most likely to turn into customers. If you have relatively low conversion rates, but high average dollar value, you may still want to bid high enough to achieve placement at the top of the search engine results because keeping the traffic level up has long-term value.

On the other hand, if your conversion rate is high — usually because the site sells products or services in high demand — but the dollar value is relatively low, it may not make sense to spend the money it would require to be in the top position.

Is First Place Always Best?
Although spending more money will guarantee you higher rankings or a higher position in the “Sponsor Results” area on most search engines, you may be able to generate a similar amount of traffic by spending less to receive a slightly lower position. Instead of always vying for the first position in search results, it may make more sense to be in the third position. Surveys show that the top three positions of sponsored results -- paid search listings — for high-traffic keywords are likely to attract enough prospective customers to justify advertising expenses.

The Benefits
The good news is that bidding for keywords is an ongoing part of the paid search process, and you can constantly improve your bidding tactics. If you find that a certain keyword or phrases aren’t providing the ROI you anticipated, try a different combination of words. Selecting the best, most cost-effective keywords and evaluating the return on investment from your paid search advertising efforts will help you make the most of your online marketing efforts and win in the bidding game.

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