Is Your Keyword Bidding Strategy Losing You Money?

Let me tell you how I’ve lost money in PPC Affiliate Marketing by utilizing the wrong bidding strategy.  Then I’ll share with you the bidding strategy that you can use to avoid that mistake.  I didn’t come up with this, I learned it by watching the PPC Classroom 2.0 video’s, but I’ll explain it here for those who didn’t watch the video’s or watched them but didn’t quite understand the significance of what Amit was talking about.

In order to illustrate my point, let’s use a fake campaign with some fake keywords and stats.  Everything here will be simplified to illustrate the point.

Here’s the wrong way to do it.

Campaign: iPod Nano.  $60 payout/sale.  They come in Red, Green, Blue, Pink and Black.

Ok, so lets say I have this campaign and I go and do some market research and find these 5 keywords I’m going to test with to start:

1. Red iPod Nano
2. Green iPod Nano
3. Blue iPod Nano
4. Pink iPod Nano
5. Black iPod Nano

So now I have my keywrods.  I go into Google AdWords and I create a new campaign and I create an AdGroup where I put in the 5 keywords you see above.  To start I use a $1.00/click maximum bid as a starting point for my bidding.

1 week goes by, and I now have these stats:

1. Red iPod Nano – 100 Clicks
2. Green iPod Nano – 100 Clicks
3. Blue iPod Nano  – 100 Clicks
4. Pink iPod Nano – 100 Clicks
5. Black iPod Nano – 100 Clicks

Total clicks for the AdGroup is 500 clicks and my total cost is $500.  Ok, so far so good, we’re getting traffic right?  So the next step is to see if we’re profitable.  So we have an AdWords campaign that’s generating about 500 clicks per week with a Cost Per Click (CPC) of $1.00.  We now login to our affiliate account and we find out that we have made 5 sales total, and made a total of $300 in commissions.

So…our cost was $500, and our earnings were $300 so we’re losing money.  This is because we’re paying $1.00/click (CPC) but our Earnings Per Click (EPC) is only $0.60 ($300/500 clicks).  So, the logical thing to do next is to find a way to lower our CPC to something below the $0.60 mark, like for example $0.50/click and then we’ll make the spread of $0.10/click in profit.

We might lose a bit of traffic due to the lower bid amounts, but eventually when we get those 500 clicks we will make $300 in sales, but it will now only cost us $250 so we’ll make a $50 profit, right?

Wrong.

I thought it worked that way, but then I lost some money and learned my lesson.

Here’s what happens next.

The number of clicks significanly drops due to the lower CPC we’re paying now.  Instead of taking 1 week to achieve our target of 500 clicks, it has now taken us 5 weeks to get that many clicks.  What’s even worse is that 5 weeks and 500 clicks later we login to our affiliate account and we are horrified to see that we’ve made $0 in sales.  What happened!?

Here’s what happened.

We didn’t track our stats to the very detailed keyword level, and because of this we didn’t realize that even though each one of the different keywords all got 100 clicks each, only ONE keyword actually converted into sales.  Let’s say that “Black iPod Nano” which received 100 clicks was the only one that converted into 5 sales.  All the other keywords (Red, Green, Blue, Pink) had 100 clicks each and 0 sales.

So what this means is that for some reason people are buying Black iPod Nano’s but not the other colors, so really the keyword “Black iPod Nano” has a 5% conversion rate, and IT by itself is profitable because it only cost us $100 for that keyword in order to make $300 in commissions which is a $200 profit.

The only reason we didn’t see that is because that keyword was also bundled with the other 4 keywords which all lost $100 each, so we had an UNPROFITABLE AdGroup.

To make matters worse, when we dropped our maximum bid to $0.50, what happened now is that the keyword “Black iPod Nano” had more competition on it because other competitors also realize that IT is a good keyword so they raise their bids on it and when we went down to the $0.50 mark on the bid, our keyword actually ended up getting buried down to page 2 or 3 of the listings.

So here is what our keyword rankings and traffic might look like after dropping the bid to $0.50:

1. Red iPod Nano – 125 Clicks – 1st Page – Spot 3
2. Green iPod Nano – 125 Clicks – 1st Page – Spot 3
3. Blue iPod Nano  – 125 Clicks – 1st Page – Spot 3
4. Pink iPod Nano – 125 Clicks – 1st Page – Spot 3
5. Black iPod Nano – 0 Clicks – 3rd Page – Spot 8

See what happened?  All of a sudden we’re not getting any traffic from the “Black iPod Nano” keyword and THAT was the only keyword that was converting, so now we get 500 clicks from all the other keyword which don’t convert very well and we end up with 0 sales and a $250 loss.

So how do we prevent this from happening?  Well, firstly, you MUST track all of you campaign stats down to the individual keyword level.  If you tracked to the keyword above, you’d know that Black iPod Nano is a good keyword that converts and the other ones are not, so you probably might even increase your bid price to above $1.00/click on that keyword and either decrease or completely ditch the other non-converting keywords.

Of course this is just a very simplified example, but I think you get the point.

To track conversions to the individual keyword level, you can use Conversion Tracking inside the Google AdWords campaign, or you can use a software called Prosper202.

Also, I believe Amit might reveal some other tools he uses to track keyword level activity on his campaigns in the upcoming PPC Classroom 2.0 which is coming out on Tuesday.  I can’t wait.

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