How to Set the Right Bid on Google Adwords?
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.
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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.
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.