Google Adwords recently celebrated its tenth anniversary. While at the same time Microsoft Adcenter, which is just over one year old, completed their merger with Yahoo search.
In the early days, advertisers paid only pennies a click. If you had to pay more than .50 cents a click you felt like you were being robbed. The story is quite different now. There are a number of factors that go into determining the price of each click, but one of the biggest is competition.
Google goes to great lengths in an attempt to level the playing field by using multiple variables other than bid price to determine which ads will appear in the top spots or, at least, on the first page of results. Things like ad and keyword relevance, landing page quality, and the ad’s historical click-through-rate (CTR) all play a factor. The goal is to allow all advertisers the same opportunity to reach customers.
The truth, however, is that with more competition the cost per click (CPC) has been going up. All it takes is one or two advertisers competing for the top spot to drive prices out of reach for everyone else. Here’s a real world example. A Hallmark executive recently complained of a few small competitors bidding ridiculous amounts for certain keywords during the traditional card buying holidays. Take Valentine’s day for example. In January the average bid price for the keyword phrase “Valentine’s Day card” might be $1.50. On February 1, a small company trying to sell their specialty cards will set their bid price at $25 a click. They want that number one spot. But the price is irrational. They can’t sell enough cards to justify the cost. But if you want to compete, then you’re going to have to raise your bid price no matter how you stack up on the other variables. It works the other way as well. The small guy is often finding themselves competing against deep pocketed competitors.
So what’s an advertiser to do? Not even compete? The answer is that search advertising remains one of the best forms of advertising available. The ability to target your ads to only people looking for what you have to offer makes PPC advertising the most cost-effective form of advertising available. But that doesn’t mean that you should just throw money at it. You still need to bring in more revenue than what you have going out.
A typical conversion rate is around 3%. If you can get to 5% or higher, you’re doing good. So let’s say that you’re in a highly competitive market and your average CPC is $5 a click. So at that rate it’s going to cost you $500 to get 100 visitors to your site. And of those 100 visitors you’re only going to convert 5 of them. If you make more than $500 in revenue from those 5 conversions, then stay in the game. If you sell a product or service that nets you only $2 or $3 per conversion, then it makes no sense at all to be paying $5 a click. In that case, it’s better to sit on the sidelines and let your competitors burn themselves out of cash.
All of this points to the need to have an optimized campaign. If you’re spending a lot of money, or plan to spend a lot of money on search advertising, you need to have a professional handle your account. You need someone who knows what features to implement and which to avoid. You need someone to monitor your campaign so that your ads appear only on relevant sites and for relevant searches.
There are few markets where there is little or no competition for search terms and phrases. The days of .10 cents a click are long gone. So be smart about your search advertising efforts. Hire a professional and let them advise you on how to make the best of this powerful marketing medium.
Hire a professional? That is your advice? The “professionals” charge more that 1000 clicks on Google. Most of these “Professional” firms don’t even talk to you unless you have thousands a month in budget. They want their cut too. I don’t think this article really helps in any way unless you have VERY deep pockets – in that case, you would have your own “Professionals” working for you.