PPC Bidding – Estimating Your First Keyword Bid
The amount of your first bids will vary depending on what your website’s goals are. If you are trying to brand your website, then your bids will be related to visibility over profitability. However, even in this instance, you should understand the max profitable bid.
First you need to know your website’s conversion percentage. This is the amount of people who visit your website versus buy a product, or complete the goal of the website.
Since pay per click search engine marketing is more targeted than most other forms of advertising, your conversion percentage should be higher than your conversion percentage for natural visitors or other forms of advertising. We are using your general conversion percentage as a benchmark in this instance.
Secondly, you need to know the average profit margin per conversion. This is how much money you make per conversion. This is not an average of how much each visitor spent, but the money your website pocketed on the transaction.
Plug in your information into this formula:
Average profit margin (APM) multiplied by conversion percentage (C%).
Average Profit Margin, APM = $50
Conversion Percentage (C%) = 2% (0.02)
$50 x 0.02 = $1
This is your break even bid. We suggest using a 50% ROI model for new pay per click accounts. In the above example, this would be $0.50.
This is only your initial bid. We suggest tracking your conversion percentage for pay per click advertising as it should be higher than your normal website conversions, and thus you can spend more per bid and still retain a profit.
The one downfall to closely monitoring your pay per click ROI is that many customers find you through pay per click advertising, browse your website, and then look at competitors websites. They may return to your website later, but not through a pay per click link, and thus their conversion might not be attributed to your pay per click advertising.
The second piece of information to remember is the value of a lifetime customer. If the average visitor buys from your website multiple times in a year, then you can afford to break even or lose a small amount on their first purchase as you will make up the loss on their repeat purchases.
This is only a benchmark for your first bid. Depending on your website’s goals and it’s ability to convert, your bids can vary depending on what you wish to accomplish.