Definition

Pay-per-click bidding is the process of bidding on keywords to determine the placement of pay-per-click (PPC) ads.  PPC, a.k.a. paid search ads, are short text ads that show up after a keyword search on Google, Yahoo and other search engines.  The PPC keyword bid price varies depending on the popularity of the keyword, quality of keyword and its ad, value of opportunity the keyword represents, and the position of the ad after the keyword is searched.  The top position goes to the highest keyword bidder, the number two spot to the second highest if everything else is equal.  The sponsor of the ad pays the search engine the amount of the bid only when the ad is clicked.  

Tactics by spending management

Account/Campaign Spending Management –   The approach of keyword biddings is to maximize the advertising return by coming up with the best combination of resource usage in a campaign or an account.  Simplest form of this bidding is Google Budget Optimizer that optimizes cost of click for maximum click count.  Advanced budget bidding is ClickSweeper’s Budget driven bidding which optimizes cost per click as well as conversion performance simultaneously.  The other type of it is called portfolio based bidding.  Efficient Frontier’s bidding is most advanced in this type.  It optimizes account and campaign spending to achieve business goal by forecasting keyword performance and optimizing keyword bid.  Since this bidding tactic manages the resource at higher hierarchy, advertisers are free from defining keyword performance goal.

Keyword Spending Management – Most performance based keyword biddings belong to this category.  Two approaches of performance based bidding are CPA based bidding and ROI (or ROAS) based one.  CPA (cost per acquisition) based bidding is most common and easy to implement.  Basically, advertisers need to define target cost of acquisition and optionally speed of bid price adjustment.  Then, CPA goal determines which keywords to be rewarded and penalized.  SEM IN A BOX’s CPA driven bidding is an example of this kind.  ROI based bidding can be promising to online merchant account since it helps advertisers measure the return of ad spending and achieve financial goal.  DoubleClick’s Dart Search bidding is a good example of ROI based bidding.

Tactics by business objective

Rank High –   The higher the ad rank, the more people will view the ad, possibly click on it to get to your website, and hopefully spend some money.   This strategy is the most expensive and labor intensive if your objective is to rank in the top three positions after every search.  It is generally employed by corporations with enough budget, resources and desire to maintain or establish a strong brand. Whatever the business, it may make sense to employ such a strategy for a few important keywords.

ROI by Keyword – When the average sales transaction amount is consistent, it makes sense to decide in advance the required ROI per keyword.  The next step is setting keyword bid amounts that generate profitable conversions – without overspending on keywords that do not generate their fair share of revenue.  This strategy is feasible with the help of third-party bidding software that continuously calculates the cost per acquisition associated with each keyword. 

More Conversions Per Campaign – Conversions are clicks that become leads or sales or some other important action that generates leads or sales.  With the help of third-party software, bidding can be optimized to generate the greatest number of conversions overall.  This is different from the ROI by keyword method where each keyword has to pay its own way.  Instead, the software sets bids to increase the number of conversions over time while maintaining a constant budget. 

More Clicks Per Dollar – For smaller budgets, one way to increase traffic is to minimize overbidding and allocate more budget to lower-priced keyword strings.  This strategy often results in more conversions per given PPC budget dollar since more clicks simply increase the chance of conversion and longer keyword strings are often more specific and cheaper. 

Sweet Spot – There is a keyword bidding with multiple bid prices ready to be applied based on its pay per click performance given any combination of the following variables:  geographic location, day of the week, time of the day, and advertising channel.  Sophisticated bidding software continuously gathers data and automatically rebids, endeavoring to get closer and closer to the ideal bid per keyword in each of the above mentioned environments. Other software allows for data mining so individual campaigns can be set up based on time of day, day of week, geographic location, content network portals and search engines.

Bidding Software Checklist

Bidding Strategy Options – Make sure the software you choose has the bidding strategy you need.  Some software is designed primarily for position-based bidding strategies.  Gap surfing used to be one of major keyword bidding strategy when Yahoo provided rank based bid price.  These implementations are outdated and can result in poor ROI.

Optimize by Conversion Type – Some software lets you track multiple conversion types by tracking different conversion values defined in conversion tracking code.   For example, a white paper down-load might be assigned a value of 1, an online lead a value of 3 and a sale a value of 10.  The software sums up total conversion value, calculate accurate ROI and optimize keyword bidding based on ROI goal. 

Dynamic Conversions – This feature lets marketers bid based on online revenue generated per keyword.  Marketers with multiple SKUS need to measure and optimize bidding based on ROI calculated by the amount of revenue a keyword brings in.

Keyword Performance Review – Some software provide a screen to help review keyword bid change along with data affecting these changes.  If software can present data affecting bid update in a format easy to understand, software can win the advertiser’s heart.

Flexibility in keyword bidding – Keyword bidding goal and selection may be set from account level, campaign level, AdGroup and keyword level.  If software offers a feature to offer an alternative bidding as exception handling and adjust performance goal at a lower hierarchical level, then you can fine tune the performance and achieve multiple goals.

Scale of data management – Some software manages data on selected keywords only while other software manages all data.  If software manages more data and give you an access to them, you can have a better picture of overall account performance and debug performance issue more readily.  However, the downside of managing all data is it can be costly.

Manual bidding as an option – Not all keywords will behave as expected and there should be a way to opt out auto bidding and update bid manually.

Content Network – Many bidding software does not optimize bidding for Google’s content network.  It would be a plus if they can.

API Cost – Check if pricing includes API cost or not.  Check also whether API cost can be a factor in managing your account.  If you have to check your bid price multiple times a day and update multiple times for many keywords, your API cost may not be manageable.  Check also the cost of importing account and campaign data daily through API.

Safety Nets

ROI & Performance Alerts – Some third party PPC bidding software can be set up to alert marketers of changes in performance, such as changes in conversion rates, click counts, costs per conversion and average position.  Once the alert parameters are configured, the software automatically notifies all appropriate parties.  This saves time and eliminates surprises.

Keyword Spending Caps – Setting a target position for a keyword can lead to runaway spending unless you set a max bid for a particular keyword.  This feature is available in some third party software.

Conclusion

The right third-party software is required to creating profitable campaigns that meet ROI goals.  Google and Yahoo are not in the business of telling you when to reduce your bids to achieve a greater ROI or which search engines are yielding the greatest returns for your business.  Third-party PPC bidding software with performance alert safety nets and automatic re-bidding protect from runaway PPC campaign spending and poor ROI.