This is an excerpt from my book “The Proven AdWords Strategy”.
The best bidding varies enormously from business to business, from keyword to keyword, and from advertiser to advertiser.
It’s impossible for me to give you the golden bid or to tell you exactly how you should be bidding.
I can, however, give you the tools and knowledge for you to successfully set your bidding yourself.
One of the metrics that will change the most times in your AdWords career is your bid/click prices. Based on the data Google AdWords kicks back to you and what your gut tells you, you’ll constantly change your bidding.
Just as in the saying “You only have an opinion until you find another,” you truly have a bid only until you set another. Depending on the statistics Google provides, you’ll need to constantly adjust your bidding to maximize your ROI.
How to Set the Right Bid the First Time
When you place your first bid, in most cases you’ll need to trust your intuition. Then within the next 24 hours adjust it based on the statistics provided at that time.
If I have no idea what I should set a bid to, I’ll take a look at the product I’m advertising. I will first and foremost look at the price and if possible the website’s conversion rate. For instance if I’m trying to sell a $10 product, I won’t start bidding at $5.
That would mean that I should convert 50% to just break even depending on the profit margins. I usually make this calculation in my head:
Click Price/Avg. Order Value × 100 = Conversion Rate
The conversion rate varies considerably from website to website, but if I have no knowledge of the website’s conversion rate I tend to stick with 2%.
The calculation then looks like this:
2% × Avg. Order Value or Profit = Bid
Using this calculation can create high bidding in relation to the actual market. Pay attention to your data and make sure you’re not setting some ridiculously high or low bids.
Want to set your bids fast? Between 8:00 a.m. and 10:00 p.m., place all your bids on $2, and then wait five hours. You’ll now be able to look at the numbers to see whether you need to bid up or down. You can read more on this at the end of this chapter.
The AdWords Auction
It’s a huge advantage to understand the auction system in AdWords when you determine your bids, especially when you have to optimize the basis of your ad position.
A Simple Explanation of Google AdWords Auction
The fact that you bid $5 per click rarely means that you pay $5 per click. As a general rule you’ll pay what the advertiser in the immediate position below you is bidding.
If you bid $3 in position 5 and the advertiser in position 6 is bidding $2, you’d end up paying $2 per click.
If your bid were lower than the advertiser’s below you, you would pay exactly what you bid. This means that if you bid $4 in position 4 and the advertiser in position 5 bids $6 you would end up paying $4 per click. You can never pay more than you’re bidding.
Remember that your bid weighs only half when it comes to determining your position in AdWords. The other half is Quality Score. Think back to the chapter about Quality Score and remember that you can bid less than another advertiser and still be in a higher position.
I recommend that you watch Hal Varian’s video about Quality Score again. The AdWords auction is explained so perfectly in this video that you truly can’t watched it too many times.
Determining Your Daily Budget
Before I discuss the daily budget I would like to start with a small disclaimer. I am a huge fan of large AdWords budgets. I know that I can get 99% of all AdWords campaigns to work if I have the right foundation. I know that AdWords for the large majority of all businesses can be a perfect media channel and can make them a lot of money.
The only factor that can limit the progress of the campaign is how fast we receive statistical significance (enough data to make an informed decision).
That said, I fully understand that new advertisers need boundaries and don’t want to worry about spending more than what they have allocated to AdWords.
However, I recommend that you take your AdWords investment seriously. You have now read almost an entire AdWords book from beginning to end and are about to build serious campaigns. It makes no sense for you to start with a daily budget of $10 to $20.
Set a budget of $30 to $50 per day, equivalent to $900 to $1,500 a month. This budget will make it possible for you to compete with the other established advertisers. Remember that they’ve been advertising for a while and probably know that they’re getting a decent return on their investment. Don’t take a knife to a gun fight.
If you follow the guidelines laid out in this book and have an average or better website, you’ll end up with great success.
Once you see the results with your own eyes you’ll want to pour more money into AdWords and start seeing enormous returns on your investment.
Is There a Link Between Your Daily Budget and Your Cost per Click?
If you’re now thinking that “Andrew from White Shark Media is recommending a $30 budget for my AdWords campaign,” then you need stop and rethink the situation.
You have to look at whether there is consistency between your budget, your click prices, and ultimately with the potential rewards.
In my early days as an AdWords consultant, I worked with businesses whose campaigns had small budgets, but what saddened me the most was their often incredibly low budgets.
I fully understand that in a tight economy when starting a business, you should be conservative about your spending. But just because AdWords allows you to set budgets of less than $30 a day does not mean that it’s a good idea.
For instance, if you look at your former AdWords campaigns and see that you have to pay $6 per click to achieve first page, then there’s no point in setting a budget of $30.This will give you about five to eight clicks daily, which is way too little.
Five to eight clicks per day will rarely convert and the only thing that will happen is your bank account will empty little by little over time.
Remember that you have to have at least 100 clicks on a keyword or ad before you can make a solid decision about its performance, and even then, it’s not certain that you have gained statistical significance. That’s why it can take a very long time with 10 to 20 clicks per day before you can optimize and then start the work that eventually rewards you the most.
My advice to you is to enter AdWords advertisement with a proper investment. If you feel unsure and insist on doing it yourself, at least talk to an AdWords agency and have them review your account. This will give you a better idea of what you’re doing wrong, and they can advise you how to best achieve your goals.
But don’t start out with a $5 to $15 daily budget. This is rarely a good idea and will only cause you to lose money.
Small Trick for Campaigns That Are Already Performing Well
If you’ve been looking through this book for some secret that AdWords experts are not telling you, here’s one.
You’ve actually come across many of them throughout this book, but I have not put them in big star boxes because AdWords is not about quick fixes. You won’t see the greatest reward until you’ve worked with all the different areas of AdWords.
This is however one of the most frequent areas I’ve seen advertisers ignore after they’ve started their AdWords campaigns.
If your campaigns are already providing you with a stable profit then you’ve obviously done something right.
Now is the time to really ramp up your advertising and maximize your profits. One of the ways to do this is through increasing your daily budget – a lot. It’s important that your AdWords campaigns never stop even when your budget is spent for the day.
The amount of searches varies considerably from day to day, and even though you don’t usually reach your daily budget if you don’t follow these guidelines you will.
I usually set a daily budget between $500 and $1,000 higher than what I actually spend on average every day. I do this both in my own campaigns for White Shark Media and for clients who have already seen a good ROI from the campaigns I’ve created.
By setting the budget between $500 and $1,000 higher than what I actually spend on average every day, I can be completely sure that the campaign will never run out of budget on a day with a spike in the searches for my client’s products.
Furthermore, your daily budget shouldn’t be the deciding factor in how much you spend on Google. The deciding factor should be the bidding you set.
“Your bidding/click prices should determine your daily AdWords costs. This is not a job for your daily budget.”
If you feel you’re spending too much money on AdWords, then lower your bids – not your budget. If you lower your budget to lower your consumption without adjusting your bidding, you’ll have campaigns that reach their budgets too early every day.
This means that you’ll end up losing impressions on a daily basis, and impressions = Clicks = Clients.
Depending on the industry and the time of year, much of the revenue from an AdWords campaign happens between 7:00 p.m. and 11:00 p.m. If your campaigns are not active throughout this time frame, you’ll miss the most purchase-oriented audience online.
Do yourself a favor. Make your campaigns profitable and then increase the budgets. It will really open your eyes when you start bidding based on a keyword’s ROI and not on how it coincides with your daily budget.
Ad Group Level vs. Keyword Level Bid Management
A question I often get asked in workshops is whether you should set bids on an Ad Group or a keyword level. Is it really necessary to set the individual bidding for every single keyword in an AdWords campaign?
My reply is always that it’s sufficient to set the bidding on the Ad Group level in the beginning. If you’ve created tight Ad Groups, it wouldn’t matter much that you change the bidding on the keyword level.
I would consider changing the bidding on the keyword level based on the match types. I would recommend that you start out bidding the highest for Exact Match keywords and the lowest for Broad Match keywords. The change doesn’t have to be large; a small difference can go a long way.
When you’re starting to optimize your campaigns, it’ll become necessary to adjust your bidding on the keyword level, and yes, this is necessary to do on all your keywords.
24-Hour Bid Management Optimization
I will briefly cover the topic of bid management optimization. Remember that I recommended you to set a temporary bid of $2 and that you let the campaign be active for eight hours during the midday.
If you’ve done this you now have a bid of $2 on all your keywords.
Depending on the competition for your keywords, you now have to increase or decrease the bidding. There’s one metric that can help you do this.
Your Average Position
Your position is a number between 1 and 30, where 1 to 11 are normally located on the first page of Google. The number of clicks on the lower positions, 7+, is relatively low compared to those on positions 1 to 6.
Therefore when you now look at your statistics and see that your average position for an ad group/keyword is lower than 7, you should consider increasing the bid by $1.
If your position is lower than 11, you should look at how much profit you’d get with a conversion rate of 2% (see my formula from earlier). If you can still be profitable by increasing your bid I suggest doing so to achieve a higher position and more clicks.
If your average position is ranging from 1.0 to 2.0, you should consider lowering your bid.
Remember that you pay what the advertiser below you is bidding. If you bid $10 in position 1 and Advertiser #2 bids $9 and Advertiser #3 bids $3, you’ll end up paying $9 per click.
However, if you decrease your bid to $8, you’ll still be in second place (still in the top three), but you will pay $3 instead. Potentially you’ll save a huge amount of money, and you’ll still be among the top ads in AdWords.
Of course there are situations in which it might be a good idea to dominate the first place, but you don’t know whether this is the case yet.
Share your secrets regarding bid management and daily budget in the comments below!
Download a free copy of “The Proven AdWords Strategies” book below to read the next chapter on landing page optimization