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The Hidden Cost Of Increasing Your Bids To Move Up The Search Results

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Steve Baker

Chief Analyst

I wrote the other week about how to find the sweet spot for your advert, the position that generates the most profit for you. But it's a long and slow process, if you are just interested in making a small change to your bids (maybe as a result of a change to your Quality Score or conversion rate). There's a shortcut that you can take, but only if you're careful... Suppose you've been paying £0.50 per click, and making some money, you figure that since a click is worth £1 to you, increasing your bid to £0.70 would be worthwhile. So, you increase your bids, you move from 5th to 4th in the results, and get 120 clicks instead of 100. Job done, and all is well with the world. Erm... no... You are now paying £84 instead of £50, and getting 120 clicks instead of 100. That's £34 more, for 20 more clicks, or £1.70 for each additional click! Which is more than they're worth. The extra clicks each cost you £0.70, but every other click (that you were going to get anyway) has cost you more, and so you have to include this extra spend in your calculations... The only way to use this sort of approach is to look at the cost per additional click, rather than the overall cost per click. When the cost per additional click reaches your breakeven point, you have reached your sweet spot - this is, in fact another way of calculating the sweet spot. Right then, example time... Take the above example. Clearly, since the additional clicks would cost £1.70 each, you don't want to do that. In fact, it was such a bad idea, you probably want to go the other way... You reduce your CPC from £0.50 to £0.45, and the clicks falls from 100 to 95 per day. Instead of spending (£0.50*100) = £50, you're now spending (£0.45*95) = £42.75. A quick sum tells you that the clicks you just ditched were costing £7.25 for 5, or £1.45 each. Too expensive, so you should move your advert down. So you try £0.40, and now have 85 clicks. Another quick sum, and you can see that the clicks you have got rid of were costing £0.88. You were making money on these, so you should keep them. And so you have your sweet spot. To prove it, here's the profit you would be making in each position:

CPC Clicks Cost Profit
£0.70 120 £84 (£120-£84) = £36
£0.60 110 £66 (£110-£66) = £44
£0.50 100 £50 (£100-£50) = £50
£0.45 95 £43 (£95-£43) = £52
£0.40 85 £34 (£85-£34) = £51
£0.35 70 £25 (£70-£25) = £45

This is a quick way of telling whether you are in your sweet spot, and whether the change that you just made was a good one or not... Since you can see on your campaign summary how much you spent, and how many clicks you got over a specified period, so you can certainly get a quick and easy answer to whether your latest change worked, without having to do lots of sums...