Making effective PPC keyword bids is part art, and part science. It can be a daunting task deciding what your keyword bids should be, especially since there’s quite a bit of money on the line. If you bid too low, you risk your ads never showing on the first page results, and having only a mere trickle of traffic coming to your site. If you bid too high, you can get top keyword positions, but the expense could be so great that your return on ad spend can dip into the negatives.
In order to make an effective keyword bid, you need to start with a baseline figure of your target cost per acquisition (CPA). Figure out what the absolute maximum is that you can pay for a lead, sale, or conversion and still make a profit. Then, dip into historical data to know what kind of conversion rate you can expect to get on that particular keyword (for new keywords, you’ll just have to make your best guess). Finally, to determine the maximum amount you should bid, you need to multiply your target CPA times your expected conversion rate.
So here’s the formula:
Target CPA x Expected Conversion Rate = Max PPC bid
Here’s an example. Let’s say my target CPA for selling widgets is $50. Based on my historical PPC data, I can see that my conversion rate for widget keywords is around 5%. So I would multiply $50 times 5% to find that the maximum amount I should bid on widget keywords is $2.50.
Of course, just because you bid $2.50 on a PPC keyword doesn’t mean that you’re going to be paying exactly $2.50 for every click. That gives you a little wiggle room (and profit!) to work with.
In some cases, you may find that your max CPC bid isn’t enough to get you on the first page, either due to CPA restrictions, intensely competitive verticals, or poor quality scores. In this case, you should probably just let go of these keywords and pick some other ones that might be a little less competitive and a little more profitable for you. By using this handy PPC bid formula, you can make sure that your campaign expenses stay on track, and that you’re getting a good ROI for all of your active PPC keywords.