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Lowering CPC bids?

Visitor ✭ ✭ ✭
# 1
Visitor ✭ ✭ ✭

Hi,

 

I hear a lot about bid management. That eventually I can lower my bid prices and then I will pay less. However I dont see the logic in that. Isn't true that I only pay the adrank of the competitor below me divided by my qualityscore. It looks to me that the only way to pay less is if I improve my QS or my competitors adrank decreases. 

 

So why bother with adjusting my bids. Isn't it just a waste of time. What advantage can I get with lower my CPC bids? 

 

Thanks

3 Expert replyverified_user

Re: Lowering CPC bids?

[ Edited ]
Collaborator ✭ ✭ ✭
# 2
Collaborator ✭ ✭ ✭

Hello Romero04,

 

Just a quick example, if you bid for the top 1-3 positions, and your conversion rates are 5%, then you move to bidding lower to positions 5-6 and your conversion rates stay the same but you pay less, wouldn't that be a desirable goal to achieve ?

Re: Lowering CPC bids?

Top Contributor
# 3
Top Contributor

If you consider adjusting your bids as a way of testing how the bid affects your CTR, your ad position and your conversion rate then it is very worthwhile.

 

Too many advertisers simply set up their campaigns and leave them - in the same way they might design an ad and then book three months in a local magazine.... the fact that you can adjust your bids, make changes to your ads, develop different landing pages, etc. is the main advantage of AdWords... you get to continually adjust and test to get more return on your investment. THAT is the point of adjusting bids.

Re: Lowering CPC bids?

[ Edited ]
Top Contributor
# 4
Top Contributor

Hi Romero,

 

Adrian and Steve have both made good points here and I'll just underline them.  AdWords is a very "dynamic" program; although we look at CPC figures in the AdWords interface, that figure is only an average and depending upon many factors the actual CPC you're charged for any one click could vary dramatically.  As you say, what you pay is based upon your position and the bids of your competitors and these elements are likely to change from click to click.

 

Once we know that the actual CPC varies, it's then worth looking at where and when we get conversions.  For example,  let's say you set a max CPC of $5.  Your average CPC as reported by the AdWords interface is $3.50 because sometimes you're paying over $4 a click and sometimes less than $3.  However, it may be that all (or most) of your conversions come when your CPC is actually less than $4.  I can't tell you why that might be - it could be the time of day, the region the Ad is shown or even simply because that Ad appears more attractive for some reason when in a lower position on the page.  Whatever the reason, in this case reducing the max CPC to $4 could actually improve your cost per conversion.

 

There's a great video by Hal Varian all about bidding and how it affects your Return on Investment.  It's well worth a watch (as are many of the other videos by Hal).

 

Google AdWords Bidding Tutorial (YouTube)

 

Jon

AdWords Top Contributor Google+ Profile | Partner Profile | AdWords Audits

Re: Lowering CPC bids?

Explorer ✭ ✭ ✭
# 5
Explorer ✭ ✭ ✭

Take three advertisers with their bid, QS and resulting adrank:

 

A1   $0.25  7  175

You  $0.20  7  140

A3   $0.20  6  120

A4   $0.12  8   96

 

The formula published means A1 actually pays $0.20, you pay $0.17 and A3 pays $0.16.

 

If you decrease your bid to $0.15, all else being equal, your adrank now puts you in fourth place and A4 is now your competitor on which your CPC is based. In this case, you now pay only $0.14. So by decreasing your bid, you decreased what you pay but also at the expense of being ranked lower which normally results in a lower CTR.

 

Managing your account should not be about adjusting bids. There's a whole cottage industry that does that and frankly, it is a waste of time and money. You need as you said to improve your QS and the way to do that is improve your ads.

 

Adrian is right but he's forgetting one thing. Your CTR will be lower. So you will get a lot less clicks for the same 100 impressions. It will take a longer time to get the same number of sales. At lower cost, true. But the other assumption is the conversion rate will be the same. In many instances, I find the conversion rate being lower as well in lower positions.

 

Let's assume a constant conversion rate and gradual decrease of CTR for each position as well as CPC. In reality, it doesn't happen that way. But for every 10,000 impressions:

 

Position  Clicks  CPC    Sales (5% used)

  1   1000 (10%)  $0.25  50 (CPS: $5.00)

  2    900             $0.22  45 ($4.40)

  3    800             $0.19  40 ($3.80)

  4    700             $0.16  35 ($3.20)

  5    600             $0.13  30 ($2.60)

 

It's just an example but I think that chart explains it all. I'd gladly pay more to get top position so that I get more clicks and thus more sales, even if the cost per sale is higher. I'm making more revenues and profits!

 

In reality, the CTR tends to fall off more dramatically, the CPC not so much so and in fact, is often higher in lower positions. The conversion rate is never the same at all positions, usually higher in first position.

 

All this to say, bid to get top position as much as possible. Unless you have poor QS (below 7) or willing to pay the resulting CPC.

Re: Lowering CPC bids?

[ Edited ]
Top Contributor
# 6
Top Contributor

@Adrian B wrote:

Hello Romero04,

 

Just a quick example, if you bid for the top 1-3 positions, and your conversion rates are 5%, then you move to bidding lower to positions 5-6 and your conversion rates stay the same but you pay less, wouldn't that be a desirable goal to achieve ?


No. Simply because the number of clicks in position 5-6 - assuming the number of impressions and your impressions stay the same - would be lower than the number of clicks in positions 1-3.

 

So if you have 1000 impressions a day and you get 40 clicks in P1-3, a conversion rate of 5% brings you 2 conversions.

The same 1000 impressions a day in P5-6 maybe bring you 20 clicks, and if you keep the conversion rate at 5%, you'll have one conversion.

 

In the end it's all about profit / day. Which is (Conversions x Average Conversion Margin) - (Daily Advertising Costs + Daily Operational Costs).

 

Sorry, I have now realized Lucid makes pretty much the same point in his post right above mine. Apologies.

 

It is worth noting though that in some marginal cases, the cost per click in the first position may prove prohibitive (i.e. you make less through selling than what you pay for advertising, it happened to me once), and P2 is profitable. Sure, the profit is not huge, but a decent profit beats any loss at any time.

Calin Sandici, AdWords Top Contributor | Find me on: Google+ | Twitter | LinkedIn | myBlog
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Re: Lowering CPC bids?

Explorer ✭ ✭ ✭
# 7
Explorer ✭ ✭ ✭

>> Sorry, I have now realized Lucid makes pretty much the same point in his post right above mine. Apologies.

 

None needed as far as I'm concerned. He may understand your explanation better.