Ad Group Bidding Strategies Take Flight

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Synopsis — Pay-per-click advertising can be a very lucrative endeavor, but it takes skill, practice, and a learning curve to take full advantage of the possibilities and make the most of your available budget. There are a lot of options available, and many different ways to set up campaigns, decide on click cost amounts, and track the results. Since you are competing with businesses and people who may be constructing their entire ad campaign budget around PPC advertising, you need to be informed and aware of the different variations and options.

In his article, “Ad Group Bidding Strategeies Take Flight,” Guy Hill takes you through two scenarios — the budget-conscious bidder and the test/learn quickly bidder. Using examples and imaginary accounts, he discusses different approaches and strategic bidding tips and tactics to help you get an upper hand in your AdWords campaigns. Be in brand campaigns or ways to find new traffic or cut costs, you will find some great advice in Guy’s article that you can put to work right away in your AdWords PPC advertising campaigns.

The complete article follows …


Ad Group Bidding Strategies Take Flight

Paid search accounts can be organized, optimized, and managed in various ways. The ad group concept, in tandem with average position, is one account structure aspect instrumental to common, everyday tasks involved in launching a new campaign or optimizing an existing one. Bidding, as related to ad groups and average position, is also key.

The ad group is a great way to categorize keywords and ads. We all use ad groups. Although a mandatory part of paid search accounts, not everyone uses all of the bidding opportunities existing at the ad group level. Some opportunities relate to launching a new account, but for existing accounts, there are also plenty of opportunities to optimize via the ad group, find more traffic, and also control costs.

Let’s start by looking at bidding. Bidding happens at either the ad group or keyword level. Google requires an ad-group-level bid for each ad group prior to launch. However, you can also choose to bid at the keyword level, immediately or down the road, and keyword-level bids take precedence. Once there is enough data for a specific keyword, most SEMs will start bidding at the keyword level, but until then, bidding at the ad group level is usually the first step.

Imagine that you are launching a new paid search account tomorrow. How much do you bid? Good discipline dictates that you let the data do the talking — collect some data, optimize, and let the data determine bidding, based on the ROI and performance for each keyword. On day one of a new account, however, no data exists, so you can concentrate on other goals. Numerous factors may play into that decision, key among them the client’s need for traffic and strategies to control costs. Let’s look at a couple of scenarios and examine the role the ad group can play in this process.

1. Budget-Conscious Scenario — For the budget-conscious company, dollars are precious. In general, by bidding high, we should rank high, but may pay a premium to run in top positions. If ROI is immediately high, this can be a good thing. If not, the budget may quickly be exhausted without learning much. A budget-conscious strategy, therefore, may start with very low bids and aim for lower average positions. It could start near the bottom ($0.10 bids at the ad group level), and see how much traffic that buys. Maybe enough traffic will result to start tuning campaigns, preserving budget, and getting our feet wet. If a week goes by with insufficient traffic, bids can be increased. You can always bid up an ad group into more competitive positions in incremental steps, and watch the average position increase with each bid change. This is a perfectly valid  strategy that I have seen work many times with clients.

2. Test/Learn Quickly Scenario — If a company has deep pockets and few budget constraints, we can spend more freely and learn more quickly than when budget-shy. To get immediate traffic, bid more aggressively at the ad group level right from the start, using average position as the guide. If average position is very low after launch (e.g., Position 6 or 8), immediately bid up to get things moving. As soon as enough keywordlevel data exists, start making ROI decisions at that level, but until then, you can speed along the process by bidding up the ad group bid.

Strategic Bidding Tips And Tactics

The parameter of average position is very interesting and potentially an underrated window into campaign performance and potential. Let’s go through some of the possibilities of average position in relation to ad group with the example of a new account just set up in Google.

In our imaginary new account, many ad groups start running in average positions of 4 to 2, based on our bids. Looking at keyword positions within those ad groups, while the ad group is running in an average position of 3, the keywords may be in any position — 5, 4, 1, etc. Once we have data, we will bid based on ROI rather than rank, but for now, we will use rank just to get to data. Looking at individual keywords, some have little-to-no data. If we are bidding too low, we get zero data, so calculating average position isn’t even possible. Does this mean there is no traffic there? Not necessarily. If no data exists simply because we have never bid high enough for an ad to show, we could be missing a huge opportunity.

Ad groups can help us test this situation for ROI. The general theory here is two-fold — push the ad group bid up higher and higher over time, while using keyword-level bids for any keywords with sufficient data to keep maximum bids from hurting ROI.

For example, let’s say our sample account launched with an average position of 3 for a given ad group. However, some head terms aren’t ranking at all at that bid level. Since we want more volume, we can raise the overall ad group bid. For those keywords with data, this will have no effect at all, since keyword-level bids will take precedence. However, for keywords with no data, or very low rank, this should push them up in rank. If there really is no traffic, this costs us nothing. If there is some traffic, higher bids will help us find it, and by bidding at the ad group level, we can change many default bids all at once. Once confident we’ve found all the traffic that is there, we can cautiously move to reduce ad group bids to more reasonable levels. We’ve been thorough,  we’ve found our traffic, and we can rest comfortably knowing we’re not ignoring potentially valuable traffic.

Up until now, we were looking for missed opportunities and more volume, and the strategy was to slowly increase ad group bids to find new traffic. Average position is a clue in this type of exploration. However, there is another side to consider. What about average position 1 or, more importantly, 1.0? How does this relate to the ad group?

In August 2007, Google altered the formula used to determine actual CPC, stating, “the improved formula will still heavily weight Quality Score, but instead of actual CPC, it will consider an ad’s maximum CPC.” This was an extremely important change. Without launching into a full debate about Quality Score and maximum bids, one way to think about this is that the change essentially made it possible to bid against yourself. A detailed explanation is outside the scope of this article, but another key is to understand that you are definitely not paying just a penny over the next bid. That is a myth. In fact, if you are in position 1.0—1.4, you are likely overbidding, and enriching Google with absolutely no benefit to yourself.

Getting back to our example, let’s say the new account has a brand campaign containing many keyword iterations of the brand. Launching with semi-aggressive bids, many ad groups were in position 3, but the brand group ran at 1.1. If the maximum bid is high enough that there is no danger of being outbid, we’re overbidding, and it’s hurting our ROI. This is very common in brand campaigns, but can also occur in other campaigns, especially when bidding aggressively. Remember, our goal in bidding up was to get data, but if we are already in position 1, bidding up higher doesn’t help drive much more data, if any. However, it does increase our max CPC, and that does cost us more for the same click. Putting it another way, we could actually bid down some, and stay in position 1. As our maximum bid comes down, often the actual CPC will come down too, and ROI will improve.

Let’s look at one of the highly ranked brand terms in our example, and then look at the average CPC. We can bid down the max CPC (at $1) to be below the current average CPC ($0.53) at $0.35. Tomorrow’s stats for this keyword will show the new average CPC at or below the maximum bid we set today. This is well below what we paid yesterday, but often our position won’t have changed at all. This is what Google really meant when they said they were going to use max CPC instead of average in calculations. You could be bidding against yourself in this range of 1.0 to 1.8.

Here we are trying to cut costs and improve ROI, so we do the opposite of what we did when trying to find more volume. Take any keyword that has data, acceptable ROI, and is in no danger of falling into position 2, and set a keyword-level bid that ensures it stays in position 1. As we near 1.7, 1.8, or 2.0, we can bid that keyword up to the 1.6—1.8 range. That’s safe. Continue this for all the keywords near position 2 with strong ROI, protecting position 1.

When all those keywords have keyword- level bids, look at all the keywords closer to a rank of 1.0. For these, remove any keyword-level bids, making sure bids are set to the default for that ad group. Then start to lower the ad group default bid incrementally, and see what happens. As you do this week over week, average CPC will decrease in real ways. Some keywords will approach the danger zone of 1.8—2.0, in which case keyword-level bids are set to keep from losing that position. Many others will continue to show improving average CPC, and better ROI, without losing any rank at all.

Summary

I have put ad group and related bidding under a microscope to show how you can use ad-group-level bids to help meet goals of budget conservation or quicker progress. I have also talked about using average position and bidding to find new traffic and/or cut costs when you are overbidding. These may be strategies you can use today, or perhaps the ad group viewpoint will become useful as another way to look at your account. A lot of subtlety and power exists at this level to help us succeed in organizing and optimizing accounts. Don’t forget to keep mining the nuances to find ways to generate better-performing campaigns.

About the Author

Guy Hill is an online marketing consultant with DroidINDUSTRIES, specializing in SEM, customer acquisition programs, and tracking/analytics.

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