Best Practices in Bid Management: Part IV of The 7 Habits of Highly Effective SEM

Bid management is probably the most difficult and least understood aspect of search engine marketing. Indeed, it is so complex that I am confident that I won’t be able to truly do it justice in one short article. So consider this article an introduction to the basics of bid management, not the be-all, end-all document. In a coming print issue of the magazine, I’ll go into more detail about some of the more advanced bid management techniques (rules-based bidding versus positional profit optimization, for example).

It All Begins with Tracking. Whether you are Walmart.com or selling out of your garage, your bid management is only as good as your tracking. There is simply no excuse not to have keyword-level tracking for all of your paid search campaigns – without it, you might as well consider your spend on the search engines a charitable donation to the Larry and Sergei private jet foundation.

The simplest way to quickly get keyword-level tracking is to install the search engines’ conversion pixels. These are small bits of code that have virtually no impact on your site’s load time and can be implemented by anyone with a basic knowledge of HTML. Install these tracking pixels and you’ll be able to see which keyword and often which ad text, search query, and referring site drove your conversions. You can then immediately start reducing or pausing keywords/ad text/referrers that aren’t bringing in the appropriate return.

Rules-Based Bidding: The Industry Standard. The easiest and most popular mode of bidding is “rules-based bidding.” Rules-based bidding means that you establish the value of a click to you, then bid a portion of that value based on a business objective. I realize that the preceding sentence makes it sound pretty complicated, but trust me it isn’t. There are three parts to rules-based bidding: A) determine your business objective; B) set minimum data thresholds; C) calculate the appropriate bids.

A. I have generally seen three business objectives occur over and over again in SEM campaigns:

1) Maximize revenue within a given budget. If you are start-up trying to grab market share, you may look at SEM as a means to grab as many customers as you can as quickly as possible, without regard to profit dollars. In such a case, your objective is to drive maximum revenue/leads/sign-ups/whatever within the constraints of your marketing budget.

2) Maximize profit. Most lead generation companies and many mature businesses are concerned with profit and profit alone. In such a case, a business would rather drive $5 of revenue with profit of $4 then drive $1,000,000 of revenue with profit of $1. Of course that’s a bit of an extreme example, but the point here is that a profit maximization strategy does not look at revenue or margin as a goal but rather as a means to drive the most profit.

3) Maximize revenue with a margin constraint. This is probably the most popular business objective. The goal here is to get as much revenue as you can, provided that you don’t go below the company’s margin objective. This enables a business to grow revenue/customers/market share while at the same time ensuring that this growth is not coming at a rate that will bankrupt the company. Basically it’s a hybrid of the aggressive growth approach of revenue maximization and the aggressive profit approach of profit maximization.

B. The next step in rules-based bidding is to determine your minimum data thresholds. The concept here is that you don’t want to bid adjust every keyword every day, simply because most of your keywords don’t have enough statistical data to make an informed bid. For example, if you have a keyword with one click and zero conversions, you wouldn’t want to reduce the bid to zero, nor would you want to make a dramatic increase in bid price on a keyword that received one click and one conversion.

I recommend a two-part approach to establishing minimum data thresholds – one based on time and the other based on your historical keyword performance. The time-based threshold basically suggests that you run data over multiple time periods – for example, you could run a 7 day report, a 14 day report, and a 28 day report. By doing this, you’ll quickly see that some keywords that didn’t get many clicks over a 7 day period are suddenly very significant over a 28 day period. You may also find the opposite to be true, where a sudden spike in clicks over a short-time period suggests that something has changed in the bid landscape that requires your attention.

For your historical keyword threshold, I recommend looking at three factors: clicks, cost, and conversions. Determine your historical conversion rate and revenue per conversion for your keywords, and then use this as a benchmark to determine when it is time to make a bid adjustment. For example, let’s say that you expect a 2% conversion rate and each conversion is worth $50 of revenue to you. Using this data, a simply threshold rule of thumb would be to say that you are going to bid-adjust any keyword that has gotten 30% more clicks than your average number of clicks required for a conversion (2% would mean 50 clicks to a conversion, 30% more would mean 65 clicks) or has cost you 30% more than the average revenue without a conversion ($65 – 30% more than $50). To account for opportunity keywords, you also want to identify keywords that may not have reached your minimum click or cost threshold, but have already gotten a certain number of conversions.

C. Now that you’ve got your business objectives and data thresholds established, it’s finally time to begin bidding (you thought it would never come, didn’t you?). A rules-based approach is defined by the following formula: Bid = RPC(1-MG) where RPC means “revenue per click” and MG means “margin goal.” Let’s put this into action. Say that you have a keyword that has received 100 clicks and $25 of revenue. Your goal is achieve a 20% margin. First, calculate your revenue per click. In this case $25/100 = $.25 RPC. Our margin goal is 20% which we express in the calculation as .2. Thus Bid = $.25(1-.2) or .25X.8 or a bid of $.20. Note that revenue per click doesn’t have to just be revenue, it can be “cost per conversion” or “cost per lead” or whatever your business metric is.

Combine Filtering with Your Bidding. If you’ve installed a conversion tracker, or better yet installed an analytics package (like Google Analytics, Omniture, or CoreMetrics), you can combine your rules-based system with additional data about your users to get even better results. I’ll be writing a separate column on filtering, so I am not going into a lot of detail on it here, but suffice to say, understanding day-parting, geo-targeting, match-type, and referrer conversion rates can have a huge impact on your bidding strategy.

Just to show this in practice, I’ve found that for some of my clients, conversions spike substantially between 7 and 9 AM and then around lunch time. Between 9am and noon, however, conversions plummet. Why is this? I suspect that people browse for products before work, then get into the office and work hard for a few hours, then go back online and start shopping during their lunch break. By increasing bids during peak shopping hours and reducing them when people aren’t serious about buying, I can achieve huge profit increases. The same is true for understanding all other elements of your user behavior.

Cluster. If you’ve built out a list of thousands of keywords, the odds are that there are many keywords in your mix that get a few clicks here and there but never get enough clicks to make it on to your 7 day, 14 day, or 28 day reports. This can often be a real problem for you, since these little keywords can collectively cost you a lot of money and margin. Consider, for example, if you had 1000 keywords that each cost you $5 a month and never converted – on an annual basis you’d end up spending $60,000 on these seemingly harmless keywords!

A good solution to stop these losses (on keywords I call ‘slow bleeders’) is to cluster groups of similar keywords together and bid en masse. If you’ve organized your Ad Groups into tightly knit groups of related keywords, the easiest way to do this is to simply create an Ad Group level default bid. For example, if you have five keywords in the Ad Group that have met your minimum data thresholds, but 200 that have not, you bid individually for the five keywords, but then aggregate click, cost, and revenue data for the remaining 200 and bid these together. If you want to get even more sophisticated, you can try to cluster keywords based on semantic similarity (words that are like each other) or behavioral similarity (users interact with the keywords in the same manner), but frankly I think creating very basic clustering rules is the best strategy to save your sanity.

Keywords are Zeros and Ones. It’s easy to fall in love with keywords. I know I sound like an uber-nerd just for saying that, but it’s hard not to get excited when you find that ‘secret’ keyword that your competitors haven’t discovered, or to just see a keyword drive in revenue day after day.

At the end of the day, however, to perfectly execute your bid strategy, you must remain impartial to all keywords. Although it sometimes hurts to bid reduce, pause or even delete one of your favorite keywords, numbers speak louder than your keyword affection. I tell my clients that I consider all keywords to basically be binary code – zeros and ones. If the keyword “coffee cake” sells diamond rings, I’m going to buy it, and if the keyword “diamond rings” doesn’t sell diamond rings, we’re going to cut it. Sometimes keyword bidding seems illogical – it can be hard to believe which keywords work and which ones don’t – but you have to listen to the numbers and not to your heart!

 

Choosing the Right Search Engines – Part One of a Seven Part Series

Several months ago I wrote an overview of the seven most important aspects of SEM to master. At the time, I promised I would quickly follow up with details on each of these habits. Well, the definition of “quickly” is in the eyes of the writer, so here I am 60 days later ready to expand upon each topic area!

The habit I’ll discuss today is “Choosing the Right Search Engines.” A lot of people erroneously believe that the answer to the ‘right’ search engines is either “just Google” or “just Google, Yahoo, and MSN.” Both of these are generalizations that shouldn’t be followed blindly.
As I see it, there are four considerations that factor into your choice of search engines – quantity, quality, ROI, and audience. Let’s look at each of these individually:

Quantity: For most search marketers, there’s no such thing as “too much traffic” (well, assuming this is quality traffic, see next point). Because SEM is such an ROI-driven field, once you discover keywords that work for your campaign, you want to grab as many clicks from these keywords as you can. Thus, identifying the search engines that can drive the most quantity for your campaigns is important.

Quantity is also important because as you increase the number of search engines with which you are working, you also increase the complexity of your SEM campaign and the amount of time required to manage your business. Thus, at some point you reach a point of diminishing returns as you add more and more search engines with lower and lower traffic volume; if you need to spend an hour a week to get an extra 10 clicks, it’s doubtful that this investment is worth your time, even if these are killer clicks.

It goes without saying that the biggest quantity opportunity is on Google, followed in a distance second place by Yahoo Search Marketing, then MSN AdCenter, and finally Ask. There are of course plenty of other options to consider (7Search, Miva, Mamma, Findology, Enhance, etc), but if you have limited time and want to maximize the quantity of clicks you can drive, start with Google and work your way down the list slowly.

Quality: Clicks for the sake of clicks is only an effective strategy if your goal is to file bankruptcy as quickly as possible. You need clicks that convert into customers, or whatever your business metrics are. As with quantity, when it comes to quality, all search engines are not created equal. There are really two factors that go into click quality – where the search engine gets it’s traffic and what tools the search engine provides search marketers to filter the traffic they receive.

A search engine like Google or Yahoo gets all of its traffic from searchers who are loyal users of the search engine (we are talking about search traffic here, not content network traffic). These are pretty much the highest quality users you can find, because they have not been incentivized to visit the search engine, nor are they tricked into thinking that a paid link is an organic link. By contrast, some of the second tier search engines will pull out all the stops to get clicks for their advertisers. This can include placing your ads on parked domains (which Google does as well), in pop-ups, or embedded in articles to make the ad appear like content.

If you are getting pitched by a search engine you’ve never heard of before, you can be fairly confident that they are doing something strange to get clicks to your site. Be especially wary if the account rep claims billions of clicks a month from ‘distribution relationships’ or ‘people downloading our toolbar’ or something else rather vague. The odds are that this traffic is going to have low quality.

The second factor to consider is whether you can stem the tide of bad traffic on a search engine. Google has led the way at giving search marketers tools to cut out bad traffic. This includes features like negative keywords, match types, geo-targeting, day-parting, IP exclusion, site exclusion, demographic targeting, and category exclusion. If you know what you are doing on Google, you can quickly eliminate any click that doesn’t meet your conversion metrics.

Most second tier search engines don’t offer any of these tools. You are left at the whim of their claims of “industry leading click fraud prevention.” Of course, you can still get around low click quality on search engines by simply adjusting your bids downward until you hit your metrics. Just keep in mind the point I made above about diminishing returns – to play effectively in multiple search engines, you need to be able to pay attention to all of your search engines all the time. An unwatched search engine is an unprofitable search engine. If you are playing on search engines with questionable quality, even a few days away from your reports could cost you thousands of dollars.

ROI: At the end of the day, quality and quantity matter little if your campaign isn’t making you money! Though I recommend that you start with Google and do everything you can do make it profitable, sometimes this isn’t possible. Google is the most ‘efficient market’ out there when it comes to search marketing simply because all your competition will be advertising on Google. As a result, you may discover that despite your best efforts, you simply can’t make a profit on Google. If you have a revenue per click (RPC) of $2 and ten other competitors have RPCs between $3 and $25, you aren’t going to be able to profitably show up on the first page of the Google results.

As a result, you need to work harder to ferret out profitable opportunities on other search engines. This may be a case where there is value to mining the second tier search engines for nuggets of gold. If you can cobble together five search engines and drive profit without heavy traffic from Google, that’s a worthwhile exercise.
On the other hand, if you are successful already on Google, you should consider whether your overall ROI would increase more from further Google optimization as opposed to trying out lots and lots of search engines. I believe that until you have done everything you can on Google, spending a lot of time on alternative engines will not be ROI positive.

Audience: Different search engines have different audiences. While you probably won’t notice a huge difference in user behavior amongst the big boys of search, there are definitely search engines out there that cater to different audiences. A great example of this is vertical search engines, such as IndustryBrains, Business.com, Quigo AdSonar, FindLaw or WebMD. If you are trying to reach B2B buyers, you may find that you can grab a lot of these people through vertical search engines. In some cases, the conversion rate on these targeted engines can be significantly higher than what you’d find on a Google or Yahoo.

And as it becomes more and more clear that the search engine world is now “Google and everyone else”, you may start to even see some of the big engines starting to position themselves around specific demographic groups. Ask, for example, has been rumored to be considering rebranding itself as a search engine for women. Anecdotally, I have been told by other search marketers that they do notice significant differences in user behavior on MSN or Yahoo as compared to Google. While I can’t say that I’ve noticed this myself, certain audiences probably do have different search engine preferences.

Conclusion: Beyond recommending you perfect Google first and then move on to other search engines, I’ve tried to avoid giving specific recommendations for which search engines to use and to not use. I’ve done this because there is no one solution that will work for every search marketing campaign. Before I was an SEM consultant, I worked at a company where we routinely drove $100,000 a month of profit from a second tier search engine. When I recommended this site to a friend in a different industry, he was sorely disappointed – he couldn’t get any conversions out of the site.

Ultimately, you need to know how to ask the right questions about a search engine, allocate your time appropriately, and be willing to run a lot of quick and dirty tests on different search engines to find the right search engines for your business. And remember, this is just one of the seven sacred steps – just because you’ve found the right search engine, you’re work is not done. Stay tuned for part II of this series – choosing the right keywords – coming soon to a blog near you!