The Search Marketing 'Remix'
Getting Down and Dirty with Social Media Optimisation
When The Adwords Sweet Spots Turn Sour....
18 Oct 2007
I blogged a while back about the sweet spot for your campaign, and how to find it.Basically, you estimate the conversion rate, cost per click and clickthrough rate for each position that your advert can appear in, and calculate how profitable each one is. You should find that one position is more profitable than the ones above or below it, and so this is where you should be putting your advert. Which is all fine and dandy. But the other day, I was doing some forecasts and my profit curve looked like this: Clearly, I'd made a mistake! So I went back, and checked my forecasts for the clickthrough rate, the conversion rate and the cost per click. Here they are... I've changed the actual figures, but the result is the same. With a profit per conversion of £300, this gave me an inverted profit curve. Assuming that the cost per click is higher for higher positions, the conversion rate is lower or the same for higher positions, and the clickthrough rate is higher for higher positions, the profit from each conversion must be higher in lower positions. In my case, the conversion rate was clearly higher, the lower my advert appeared. If this effect outweighed the increased number of clicks that I got in a higher position, then it's possible that I'd predicted that I'd get more conversions in a lower position than in a higher position. For example, if 5th place generated 5,000 clicks with a 3% conversion rate, and 6th position generated 4,000 clicks with a 4% conversion rate, then 5th place would generate 150 conversions, and 6th would generate 160 conversions. Clearly this is a danger when forecasting, particularly if you extrapolate beyond the range of your data. I can't accept that you can get more conversions from a lower position in practise unless you have a restrictive budget (which I didn't), so I looked at my data to see if this was the problem... So that's not the problem. Finally, I looked at the profit per conversion, the number of conversions, and the product of the two (the total profit). The number of conversions is lower in lower positions, the profit from each is higher, and you get this 'inverted' profit curve - a 'sour spot'. So, the question is whether this is possible in reality, or if it's just a flaw in the forecasting method. The answer is surprisingly simple once you think about it. If you advertise in a very low position (say, 100), you'll get almost no conversions, and hence make almost no profit. The true shape of this curve would probably be something like this: It's possible that multiplying these two monotonic functions (conversions and profit per conversion) can generate two turning points in your profit curve - a maximum and a minimum. I can accept that this is possible, and graphs of the above shape will have a sweet-spot of either 1st or the local maximum (in the above example, 6th). This raises one final question. In the above example, I looked at the top six positions, saw the sour-spot and understood that I needed to extrapolate further. But if I'd only run the advert in positions 3 to 8, I would have seen a sweet-spot, and thought no more about it. In this case, I'd still (just about) have the correct sweet-spot, but another time, I may have missed out on potential profit. And perhaps I have done. My conclusion is this - extrapolate your data as far as possible, limiting your graph only at your total budget. See if this kind of shape is a possibility, and investigate it.