4 Rules of Thumb to Help Search Engine Marketers Balance Costs and Results
How does cost per click change with average position and the number of words in the searcher's query?
My company, AdGooroo, set out to answer this important question through quantitative research designed to provide a way for search marketers to predict how CPC and clickthrough rates change based on the length of a search phrase and average position, as reported by Google AdWords.
The following rules of thumb can help search engine marketers control costs and at the same time get results:
1. Broad versus niche keywords. Most performance-based advertisers should bid modestly, if at all, for broad, single-word keywords and more aggressively for longer, niche search phrases. Performance-based advertisers looking for immediate conversions have little to gain from bidding for the top spots on search results pages for broad and single-word keywords. In general, bidding for top spots will better serve larger advertisers who don't manage their spends by ROI targets or those with the capability to attribute a conversion to multiple searches or clicks. Advertisers that regularly command high conversion rates or average order sizes also can afford to bid for higher positions, but this may not always be necessary.
2. The luck of seven. For most broad keywords, the point of maximum profitability occurs around position seven. If an ad isn't profitable at position seven, it likely won't be profitable anywhere on the first page of search results. In these situations, advertisers should lower their bids or consider pausing advertising for keywords altogether. This rule drastically can reduce the time required to optimize the bid strategy and positioning of keywords when they're first added to a search program.
3. Multiply conversion rate by average order size. This simple math equation can tell advertisers, with great probability, whether a keyword will be profitable or not. While boosting either of these performance metrics can increase profitability, in most cases the total cost far outweighs the increase in profitability. Advertisers must look at two numbers: the conversion rate multiplied by average order size, and the CPC at position eight multiplied by 10. If the former is greater than the latter, the bid should be increased until it shows up in the top half of search results. If the keyword is profitable at the new — or higher — position, it'll likely continue to be profitable regardless of how high the bid price rises. In practice, this'll be a rare but fortuitous occurrence. This equation proves particularly helpful for guiding management decisions in campaigns not leveraging conversion tracking or when sufficient keyword clickthrough data is lacking.
4. Finding your niche position. Under most conditions, profitability for niche phrases is maximized around position two and then rapidly falls off after position three. Therefore, most advertisers should bid high enough to reach position two or three, but no higher unless tracking confirms that the higher position remains profitable.
The complimentary report, Research Update: How Keyword Length and Ad Position Impact Clickthrough Rate and Cost-per-click on Google AdWords is available for download at: www.AdGooroo.com/CTRStudy.
Richard Stokes is founder and chief gooroo at AdGooroo, a Chicago-based provider of online marketing competitive intelligence and keyword tools. Reach Rich at firstname.lastname@example.org.