Google Ads Bidding Strategy
In Pay Per Click advertising (PPC) systems like Google Ads there is a trade-off between your ego and wallet, and it amazes me how often the ego wins. Most people are naturally competitive, and Google Ads plays this like a fine instrument. In the early days of AdWords Google provided the average position and most people locked into “Being in Position 1.” Google changed that and now provides impression share (how often your ads show up) data rather than position, but the game is still the same. The reason we are having this conversation today is that being number 1 is best for your ego but many times a lower position is better for your wallet. We strongly believe that priority is to put money in your wallet not Google’s.
Lower Position Strategy Data Example
Let’s take a look at what a lower than position 1 (Abs. Top) strategy might look like to your wallet.
| Description | Ego | Wallet |
|---|---|---|
| Position | Top | Other |
| Budget | $1,000 | $1,000 |
| CPC | $5 | $1 |
| Net Visitors | 200 | 1,000 |
| Conversion Rate | 2% | 2% |
| Average Order | $200 | $200 |
| Total Revenue | $800 | $4,000 |
| Gross Profit | $400 | $2,000 |
| Marketing Expense | $1,000 | $1,000 |
| Profit/Loss | <$600> | $1,000 |
By going after a less competitive position, results went from a loss of $600 to a profit of $1,000. To have faith in this math, there are assumptions in this that you must accept. First, there must be enough traffic that you can still spend the entire budget. Next, you must believe that after they click on the ad, that the ad position is no longer important. To get this result, an account would have to change their strategy from “Highly Aggressive” to “Conservative” although every market will be different. See table under the Rule of Thumb section below for definitions of these terms.
Does NOT apply to Everyone
There are situations where this is a bad strategy and most have to do with some form of emergency traffic. For example, a Plumber or Lawyer might have Abs. Top strategy because once the person believes that the business will serve their emergency, they stop shopping. This strategy is for businesses that have more available traffic than budget and who sell by making it to the short list. A short list is where the consumer sets a number of vendors they will consider. If a consumer has a short list of 5. Then first or fifth is the same because the selection is after the ad has served its purpose.
Go Ahead Google – Talk Data to me!
There is no doubt that ad position matters. Many think the higher on the page the better but that is only one part of a multi-variant issue. Simply throwing money at your bid will improve the position but at what cost? If you have a budget constraint, and we all have them, then higher bids actually reduces total traffic. To understand this issue we need to examine all the variants involved in this process. The variants are:
- Impressions
- Clicks
- CTR
- Avg CPC
- Search Impression Share
- Search Abs. Top IS
- Search Top IS
- Search Lost IS (Rank)
- Search Lost IS (Budget)
- Search Lost Top IS
Let’s get the acronyms out of the way.
CTR = Click Through Rate, Clicks divided by Impressions
CPC = Cost Per Click
Abs. = Absolute Top is the first Google Ads position
Top = Top positions above the organic and map positions
IS = Impression Share, total impressions divided by the estimated number of impressions you were eligible to receive
Rank = Loss from a low ad rank, bid times quality score
Budget = Loss from low budget
Reducing Bids = Reducing Shares & CTR
As you reduce your bids, your ads will slide down the page. Remember that ads only show on the top and occasionally on the bottom. This is important because the CTR drops steeply as your ads drop out of the Top Positions. It is not unusual to see CTR drop by an order of magnitude from Top to Other. You can see this data using the “Top vs. Other” segment tool.
Contrary to what Google would have you believe a lower CTR is not always a bad thing. If you can spend your entire budget at a lower CPC and CTR that is good for your wallet. This is assuming that your CPA (Cost Per Action) and VOA (Volume of Actions) stay in line with your goals.
It’s the CPC Stupid!
This is borrowed from the famous phrase coined by James Carville in 1992. The purpose of the quip was to keep people focused on the important issues and it made Bill Clinton President. Here, I want you to focus on what drives your Google Ads. The Search Impression shares are all driven by the CPC and it is your Bid, Quality Score, and Competition that sets your CPC. Your Bid is the one variable that you have immediate and direct control over. As you push the bid up or down you will move the Impression Shares. The point is the Bid is what you can change immediately.
Rule of Thumb
Different businesses operate at different levels in the market and it relates to their competitive nature and target Impression Shares. The best one to work with is the Search Top IS. Here are the common targets for this number:
| Strategy | Range |
|---|---|
| Highly Aggressive | 75%+ |
| Aggressive | 50%-74% |
| Average | 25% – 50% |
| Conservative | 10% – 24% |
| Highly Conservative | Under 10% |
As you move the bid higher, you are shifting more toward your ego and away from your wallet. Remember that you must watch the Search Impression share because that tells you if you are walking away from market opportunity. You must watch the CTR because it is a big part of the Quality Score, which is another form of money in this situation. If your traffic is emergency traffic, then pay attention to the Search Abs. Top IS. If you decide on a strategy and use the table above in most cases, you will be close to your optimized balance point. From there it will be fine adjustments with consideration of your CPA and VOA.
Budget or Rank
- Search Lost IS (Rank)
- Search Lost IS (Budget)
If you are losing Search Share to Budget the fix is simple. Increase the budget and give Google more money. Loss to rank is a different thought process. This means that the Bid is too low to qualify for the impression, so your ad does not show up. The fix is to increase the Bid but that drives up the CPC and consumes the budget faster. At this point you are probably seeing just how complex this can get to be but just wait it gets worse. As you increase your bid to bring the Search Lost IS (Rank) you will find that the last 10% is often not worth going after. This is because the increase in bid goes back to the first click. That last 10% cost more than the incremental click cost because of the CPC increase on the first 90%.
If you are looking for one right answer…this is not the question.
Most sales and marketing challenges come down to balancing different variables and variables are connected to each other. Businesses always want to change one variable without having the others move but that is just not reality. This specific challenge has an abundance of balance and string effects. The key is understanding the relationships and finding the right balance for your business.
Bid Less Get More
This is all about the goal in this headline. Bidding more is good for Google but may not be the best for your business. This is one of those places where we do not agree with all the “Google Best Practices.” You must remember that Google makes impressions and sells clicks so they think that the CTR is the holy grail. The reality is that you run Google Ads to help your business not theirs. If you can reach your volume goals, then the goal is a lower cost. It is when you cannot reach your volume goals, that you should consider increasing the bid.