How to Determine Maximum CPC in AdWords
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April 19, 2010
Written by Christine Laubenstein Posted In: AdWords Tips
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If you are a savvy AdWords advertiser, or at least someone who wants more control over your AdWords account, you may want to consider setting maximum cost per click (CPC) for your keywords and keyword groups.
AdWords offers automatic bidding for those who aren’t interested in setting their cost per click amounts manually. But for those of you who are, you can follow these steps to formulate your maximum cost per click:
1. For each keyword or keyword group, determine your desired profit margin for each corresponding sale or sales lead. So, if you are selling oil paintings on your website, figure out how much you want to make on each one. Maybe that figure is $20, for example.
2. Determine the amount you are willing to spend for each conversion tied to a particular keyword or keyword group. A good rule of thumb is setting this figure equal to your desired profit margin. So, in the case of the oil paintings, you’d agree to spend up to $20 per conversion.
3. Set your prices accordingly. Use your desired profit margin, maximum cost per conversion, and any other cost figures to come up with your product prices. Maybe you did the oil paintings yourself, and only had to pay $20 per painting for materials. Electricity for your studio cost about $10 per paining, you determined. Factor in the $20 profit margin and $20 maximum cost per conversion, and you sell your paintings for $70 apiece.
4. Determine your conversion rate for the appropriate keyword or keyword group. If you’ve been selling products or services for a while now, this may be an easy figure to determine. Just look at your historical metrics. If you see that on average 2% of clicks have resulted in conversions, then 2% is the figure you’re looking for. If you haven’t been selling for very long, you could use a 1% conversion rate as a benchmark.
5. Multiply your maximum cost per conversion by your conversion rate to determine your maximum cost per click. So, if your past paid search marketing efforts have yielded a 3% conversion rate, multiply that by your $20 maximum cost per conversion. That gives you a figure of 60 cents for your maximum cost per click.
6. Look at Google’s Traffic Estimator for the going maximum CPC rates for your different keywords. For example, type “flower oil paintings” into the keywords field. You will see that the estimated average cost per click for the top three ad positions is $.62, and the maximum cost per click for the top three ad positions is $1. This may prompt you to up your 60 cent cost per click amount.
7. You can also use Google’s first page bid estimates to fine-tune your maximum cost per click amounts. This information, which gauges the cost-per-click bid required for your ad to appear on the first page of search results for a particular keyword or keyword phrase, is located on the Keyword Analysis tab of your AdWords account.
8. Modify your maximum cost per click amounts based on your ads’ performance. If you end up having high conversion rates for certain ads, and low conversion rates for other ads, adjust your maximum cost per click amounts accordingly. That might mean, for example, raising your maximum cost per click amounts for the high-converting ads so they get even more qualified traffic and bring you even more profit.
When deciding on your maximum CPC in AdWords, it’s important to remember that bids aren’t the only determinant of your ad’s placement. You must also strive to improve your ad’s Quality Score. You can do that by improving your landing page’s quality, making your ad and keywords more relevant to one another, and bettering your click-through rate.
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Monday April 19, 2010
Joel (not verified) Said:
Super info in this post - you've broken the topic down really well. Thank you! Joel
Monday April 19, 2010
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