Four User Engagement Metrics to Get Comfortable With

Four User Engagement Metrics to Get Comfortable With

Paid Search is qualified by a few metrics. CTR is a good indicator on the surface, while Bounce Rate, Pages Per Session and Average Session Duration are good post-click engagement metrics. All of these metrics help you hit your KPIs. With that, let’s review what these metrics mean for your or your client’s account.

Click Through Rate (CTR)

Google defines CTR as, “the number of clicks that your ad receives divided by the number of times your ad is shown (impressions).”  In general, this is a good measure of how relevant your ads are to your target audience. That said, the definition of CTR success may be relative to your campaign type or goal.

  • Awareness. Awareness campaigns are used in both Display and Search campaigns. They are top funnel keywords that are less targeted but result in exposure for your brand to a larger, broader audience. In this way, they may not have as high of a CTR because your audience is less segmented, but a larger reach.
  • Branding. Branding is an easy and cost-efficient way to get your CTR up. Buy the branded keyword and get clicks when consumers search that term and click on your ads. Branded keywords tend to be cheaper and drive great traffic. That said, unless discussed otherwise, Two Octobers does not buy branded keywords because we believe our clients can get those results for free through their organic search.

Pages per Session & Average Session Duration

First, it would be helpful to define a session.  A “session” is, “a group of interactions that take place on your website within a given time frame.”   Sessions last 30 minutes by default. Here is a graphic that helps explain what a single Session entails.

Session

Souce: Google

 

Pages per Session

Google defines Pages per Session as, “the average number or pages viewed per session.”  The above graphic illustrates six pages over the course of a single session.  Before creating a goal for this metric, consider: How many pages does the average user view on my website?  Does this align with our campaign expectations?  What does this mean in terms of our conversion funnels?

  • Top Funnel – We expect higher average Pages per Session rate in the Top Funnel for two reasons.  First, these users are in the early research stages.  Secondly, these ads direct users to a generic landing page (usually the home page) forcing them to navigate deeper into the site to find the product or service that may interest them the most.  For instance, a user might type in “new trucks” when starting their research for their next truck purchase and dive into their research based on these Search results.
  • Bottom Funnel – We would expect to have a lower average Pages per Session rate here.  Why?  Users that are targeted in this funnel have already done their research and/or are close to making a purchase.  Thus, ads that are being triggered for these users are much more specific.  For instance, our user who recently searched “new trucks” has now narrowed his sights and is now searching “2015 Ford F-150 for sale” to specific websites/landing pages with this particular model for sale.  If the Search campaign is set up correctly, this interaction can be accomplished on a single landing page.

Average Session Duration

Google defines Average Session Duration as, “the total duration of all Sessions (in seconds) divided by number of Sessions.”  With this metric, consider: How long is the average user interacting with your site?  Is this long enough to accomplish the goals that you have identified while building your advertising campaign?  What does this data say about your conversion funnels?

  • Top Funnel – Top Funnel users are at the beginning stages of product/service research, so they may take a long time on a site after clicking a Search ad or not.  Look at your product or service and think like a potential customer.  How long would it realistically take you to decide on making a purchase?
  • Bottom Funnel – You would expect bottom funnel searchers to spend the least time on site. They have done their research and are being landed on an interior page with a more specific product. These people are closer to converting and for this reason, less engaged on moving around the site. We should see high conversions for this group, but less time on site or pages visited.

Bounce Rate

Bounce Rate is a tenuous metric.  Google defines the Bounce Rate as, “the percentage of single-page sessions (i.e. sessions in which the person left your site from the entrance page without interacting with the page).”  This means that the Bounce Rate skyrockets when a potential customer enters and exits on the same page, with no other movement on the site. Best practices for paid search dictate landing consumers on the most specific website page to their search. If done correctly, this could result in a higher bounce rate because the need to find the product or service on site is lost. Consequently, you have a high bounce rate on a well-placed ad.

  • Top Funnel – It is not unusual to want a Bounce Rate of 50% or lower for this type of user.  This is because they will generally land on a more generic page and the campaign might be designed for them click through different products or services (think about our initial truck buyer searching for “new trucks”)
  • Bottom Funnel – Bounce Rates for this type of user may be higher because of the decreased need to navigate through the site. Our truck buyer searches “2015 Ford F-150 for sale” and reaches a dealership site with all the information on this specific truck with dealership info in the footer. The user sees then calls the dealership, closes his browser and leaves to purchase the truck.There is no need for this user to click around the site if the Search ad directed him to the perfect landing page.

As you can tell, there is never a hard and fast rule when it comes to analyzing user engagement metrics. But, the more we understand about user engagement data the more informed decisions we can all make whether we want to increase brand exposure or to close sales.

Bidding Down Is Hard to Do: Accepting the 1-3 Position Might Not Be the Best Fit

In our recent post, Six Ways to Identify Poor PPC Campaign Management, the number one item to monitor was a daily budget that exhausted itself early. Budgets that run out of money too early exist in campaigns that have limited their click potential. Since you’re reading Two Octobers’ blog and you have an interest in SEM, you maybe sort of already know that but you might not be totally clear on the how or the why. Let us explain. We’re experts.

First things first, a lot of people are concerned with top visibility. Specifically, they either want the first position, or the first/second/third position, all of which not only occupy the top center of the Google search page but also have the most expensive costs per click (CPCs). People want these positions because they believe the traffic is better there, the ad more glamorous and the prestige endless; the truth is, the audience is the same but the click is more expensive. Yes, the 1-3 positions on the screen are more eye-catching, but at the end of the day, it’s the same ad with the same message, talking about the same product. Remember, the person that sees your ad in the fourth position has the same interest as the person that sees your ad in the first position, and they have the same engagement on your site and the same conversion.  (If you don’t believe me, believe Google: Conversion Rates Don’t Vary Much with Ad Position).

So if that is true, why would someone vie for the top position? Why not pay less for the same click? To begin with, it’s a bidding system, which means someone has to be at the top. Secondly, it is to Google’s advantage to make the top position seem like a necessity. Third, there are differences in positioning: An ad in the first position gets noticed more and clicked on more frequently. The increase in clicks means the click through rate (CTR) increases and an increase in CTR should correlate to a decrease in CPC. Google rewards you for having a well-targeted ad that people click on. However, you are paying more for a top position ad, so the decrease in CPC may be negligible. The take away: ads in higher positions have a better CTR but usually still cost more.

Your strategy for ads in a lower position should be that they cost less and thus can drive more traffic. If you have a $100 budget for the day and an ad in the first position that cost you $5.00, you’re looking at 20 clicks for the entire day. If you lower your CPC to $2.00 and maintain the 5th position, you could drive 50 clicks for the day. That’s a huge increase in traffic.

I realize this strategy may be counterintuitive to what you know to be true (top positions for top ads!) but paying less for clicks will be worth it.

Paid Search for Brand Keywords: To Bid or Not To Bid?

retro diner sign, Market Street

Retro Diner Sign, Market Street, by put_the_needle_on_the_record

We’ve long held the belief that bidding on your brand terms in paid search advertising is inadvisable for most advertisers. In order to make your marketing dollars work hardest, we reason, why pay for users who are already aware of your business? Instead, use paid search advertising to attract new prospects who were searching for your service category and don’t already have you in mind.

But a recent analysis of multi-visit data for one of our clients has us rethinking that blanket statement. Our customer, a large retailer with locations throughout the Midwest, has great brand recognition. We found that 73% of the visits that happened before a conversion included at least one branded search, and 14% of the paths to conversion were all and only branded search.

With so many customers converting after searching for the brand name, perhaps paid search advertising on your own brand keywords is a great opportunity to get prospects to convert faster, by providing them with your marketing message right before they enter the door of your website. Bid on your brand keywords, and you get one more billboard to throw a message at them before they visit your website. Would a special offer entice them to go from browsing to buying? Now’s the time to try it.

So our advice is evolving. Here’s what it looks like now:

Don’t bid on your own brand keywords if:

  • You have limited marketing funds. You want to use those dollars to attract new customers who don’t already have you in mind.

Consider bidding on your own brand keywords if:

  • Your competition is bidding on your brand keywords and you want to counteract that effect.
  • The organic search results for your brand don’t show stellar results, for example bad news or a complaint website appears on the first page of results. Having a paid search ad will push those results farther down the page and possibly under the searcher’s radar.
  • There are multiple companies with similar names to yours, or your business name is easy to misspell, and you want to make it easier for prospects and customers to find the right website by having a search result you control completely.
  • (new!) You can influence the time-to-purchase by sharing a marketing message before users visit your website. Or you want to promote something special that’s going on at your company, like an event or a sale.

As with so much of online marketing, there isn’t one simple answer that applies to all situations. What do you think? What factors have you used in deciding whether or not to bid on brand keywords?

The Mind of the Searcher

I was recently working with a client and struggling with a profoundly low conversion rate coming from search ads. The keywords we were buying were on target, the ads were performing well, and the landing pages appeared well designed. Then I tried to put myself inside the mind of the searcher. When I did that, I realized that the landing pages we were using were not as well designed as I thought, and our ads were missing the mark. The mistake we had made was to consider keywords, ads and landing pages independently. Sure, the ads were relevant to the keywords, and the landing pages were relevant to the ads, but we hadn’t really been thinking about the searcher’s intent through the process. The action we were expecting searchers to take did not fit the need that had motivated them to search. I spend a lot of time thinking about and optimizing for consumer intent, but after making such a mistake, I decided I needed a model against which to judge search ads and campaigns. Following is the model I put together.

The Mind of the Searcher

Intention – before a person searches, she has an intent: intent to buy a pair of shoes; intent to learn about zanzibar; intent to determine the health benefits of a Blooming Onion; and so on. Some sort of information need driven by intention motivates her to search. When we start a search marketing campaign for a business, we begin by defining personae we intend to target with the campaign. The personae represent categories of intent. For example, shoe-shopping personae might include fashionistas and pragmatists. Fashionistas want to know what’s hot, pragmatists want a trustworthy vendor with a good return policy. We tend to organize our campaigns around the personae we define.

Search – once the person has translated intent into an information need, e.g. “I want a new pair of shoes” -> “where should I buy a pair of shoes?”, she turns to a search engine. While this step in the process garners a lot of attention among marketers, it is largely procedural in nature. Search listings do not address the searcher’s intent (you can’t wear them, for example), nor do they meet her information need in any real sense. They are merely pointers to information. The searcher quickly scans search results, looking for cues that indicate her need will be met by clicking on a listing. The right cues to include are a natural consequence of the personae we’ve defined. We also have to be mindful that there is a lot of information on a search results page. We can provide the right cues, but if our listing is boring or far down the results, it may never get evaluated.

Consideration – after clicking on a listing, the searcher evaluates the content on the landing page. Does it address her information need? She has criteria, conscious or unconscious, with which she will make a quick decision and either move forward or back up. The important thing here is to make sure that the landing page aligns with her original intent and is easy to digest. Too much information and she is likely to back up and look for a more suitable source. Too little information and her criteria can’t possibly be met.

Action – lastly, as marketers, we want the searcher to take some form of action, whether it be to call a number, watch a video or buy a product. Again, it is not a good idea to overwhelm the searcher with too many options, nor is it a good idea to present too few. Some people may be uncomfortable calling and prefer to communicate via email. Some people may want to read technical specifications before buying a product. The main thing is to decide what actions you want to emphasize, and make them as frictionless as possible.

This model bears a lot of similarity to the classic purchase funnel found in many marketing textbooks. It can be viewed as a specific instance of the funnel, applied to search marketing. I find it helpful, but the main point is that different types of keywords and search phrases belie different kinds of intent. When focusing on one stage of the process independently, it can be easy to lose track of that fact.

Nico Brooks is a data geek who struggles to get his head around marketing problems, but he always enjoys the struggle. Two Octobers is an internet marketing company that provides marketing services and strategic consulting to businesses selling to local markets.

To-Do List: Building a Keyword List

This list is intended for someone who is creating a new paid search advertising campaign. Much of it still applies if you are looking to grow an existing campaign or researching keywords for organic search engine optimization (SEO) purposes, but not all steps will apply in those cases. To keep things simple, I am only going to talk about Google. I usually do most of my research and testing in Google, then copy keywords and campaigns over to Yahoo and Bing.

This process can be fun and instructive if you think of yourself as a psychologist trying to understand how and when your prospects search for what you have to offer. I enjoy constructing theories about what’s in the head of searchers – I’m sure I’m mostly wrong, but it makes it more entertaining.

Spaghetti Against the Wall
When I’m building keyword lists, I don’t worry about how much volume each keyword drives or how much it costs to be in a top position. There’s really no downside to having a lot of keywords, and sometimes your best performers will come from places you don’t expect. I call it the spaghetti-against-the-wall approach – throw a lot of keywords out there, and a few will stick. Those are the ones I spend time optimizing.

Match Types
It is very important that you understand how match types work if you are adding keywords to your account. For an explanation of match types, see the article How to Use Google AdWords Match Types.

On to the to-do list…

The To-Do List (& a PDF version of the list for printing)

  1. Get your ad groups going - Ad groups should correspond to individual products and/or services you offer as well as product/service groupings. For example, if you sell a variety of hammers, you should have an ad group for hammers in general, and ad groups for each type of hammer. Use your judgement regarding how specific to go – people might search for “ball peen hammers”, but they are less likely to search for “ball peen hammers with red handles”. The former merits an ad group, the latter probably not.
    When you are first creating ad groups, you don’t need to come up with a big list of keywords for each. I usually create a bunch of ad groups at a time, and I don’t worry about researching keywords until I have them all live. For example, if I am creating an ad group for “ball peen hammers”, I’ll probably create it with the single keyword “ball peen hammers”. It’s more efficient to get ad groups going, then go back and add keywords using the following techniques.
    AdWords Ad Groups UI
  2. Add more keywords with the Google Keyword Tool - In the AdWords interface, go to Opportunities > Keyword Tool
    The Keyword Tool is useful for coming up with variations on keywords, but it can also be slow and tedious to go through results. It doesn’t do a good job at all of sorting keyword suggestions by relevancy. I usually sort the results by the column “Local Monthly Searches” (by clicking on those words) to see what keywords get the most volume. “Local” here refers to the country in which you are searching.
    At this stage, I’m mostly looking for high-volume variations. The Keyword Tool comes up with a lot of junk, but I usually find a few worth adding. Since I have sorted by search volume, I go down the list until I hit some reasonable volume threshold, say at least 1,000 searches per month. It may be more or less than that, depending on the category of keyword. To add keywords to an ad group, select the ones you’d like to add and click Add Keywords. You will be prompted to select an ad group.
    Google AdWords Keyword Tool
    It is very helpful that the Keyword Tool gives volume numbers, but take them with a grain of salt. It defaults to showing volume for broad match keywords, which can be deceptive. On the left-hand side there is an option to switch it to exact match, which will give you a better idea of how often each individual keyword is searched. The volume numbers are also pretty unreliable. It will often show that a search term gets very low volume when in fact it gets decent volume.
  3. Add even more keywords with Google’s Add/Edit suggestions - In the AdWords interface, go to Campaigns > Ad Groups > [select an ad group] > Keywords > Add Keywords
    This functionality is similar to the Keyword Tool, but does a much better job of grouping and prioritizing keywords that are relevant to your ad group. Recently, I’ve been using this tool more than the Keyword Tool to build keyword lists. It works best after you’ve added some keywords to the ad group, so best to get things started with the Keyword Tool. Per above, I use the Keyword Tool to find high-volume keywords, then I use this tool to add more specific variations.
    AdWords Add Keyword UI
  4. Spy on your competitors - There are several tools that show which keywords are driving traffic to competitor sites. Looking at what your competitors are bidding-on and optimizing-for can be a good way to discover new categories of keywords and unusual opportunities that the Google tools won’t spot. Several to try are SEMRush, KeywordSpy and SpyFu. I lean towards SEMRush right now, but there is not much difference between the three. Each offers additional capabilities for a subscription, but try out the free versions first.
  5. Set initial bids - There are two ways to approach this. If you are on a tight budget, start by bidding low and collect some data before you start raising bids. The downside of this approach is that with low bids it may take a while to collect enough data to make a change. If you are not on a tight budget, bid keywords high enough to get a top 3 position and adjust bids up or down as you collect performance data. This approach will generate sales faster, but you will waste some budget on non-performers as you collect data. For more on setting bids based on ROI data, see this article: Paid Search Bidding Based on ROI

Using this process, I find I can get a typical campaign going in an hour or two. Over time, I’ll go back in and re-apply these techniques to expand ad groups that are performing particularly well, and to look for new opportunities. There are also a number of more advanced techniques people use. I’ll include a couple here as extra credit:

  1. The Search-Based Keyword Tool - Go to Opportunities > More tools … > Search-based Keyword Tool
    I find this tool is very finicky, but useful if you can get it to work. It looks at your site and draws on Google Analytics data to come up with keywords relevant to your content. It also tells you which page each keyword is associated with, which can be very helpful for organizing keywords in to ad groups. Google won’t tell you this (as of this writing), but the tool only works if you are signed up for Google Analytics and have your Analytics and AdWords accounts linked. It also won’t work from an MCC login. If you don’t know what that means, you don’t need to worry about it.
  2. The Webmaster Tools Keyword Report - Log in to Webmaster Tools  > [your domain] > Your Site on the Web > Search Queries
    This report shows which keywords are driving traffic to your site via Google’s unpaid listings. This can be very helpful for identifying SEO opportunities, but also useful for paid search. You should be bidding on any keywords that are relevant to your business but for which you do not rank in the top few positions. In particular, this tool will show you keywords for which you are getting traffic, but rank poorly in organic search. For example, if you rank in position 9 for a keyword that is one of the top drivers of traffic to your site, you should add it to your paid search campaign. If you are not familiar with Webmaster Tools, click here to learn more: Webmaster Tools

There are also some subscription-based research tools that help the process of managing and growing keyword lists, Wordtracker and Keyword Discovery being two of the most well-known. I don’t believe these tools are worth it for an individual advertiser unless you find yourself spending many hours per month managing keywords.

Anyone have other suggestions for getting a keyword list put together quickly? I’d love to hear them if you do!

And if you’d like help with search marketing, please drop us a line or give us a call: Contact Us

This post is part of

Two Octobers’ Local

Online Marketing Guide.

How to Use Google AdWords Match Types

Google AdWords allows you to specify a match type for each keyword you bid on. Yahoo and Bing do too, though there are some slight variations in how they work.  The three match types in Google are exact, phrase and broad.  The match type you choose tells the search engine when to match a user’s query to your keyword. Here’s how each match type works:

  • Exact: your ad will be served when and only when a user enters the keyword you purchased. If you want to make a keyword exact match, you put square brackets around it when you enter it.
  • Phrase: your ad will be served when a user enters a phrase that includes the keywords you purchased in the same order. For example, if you bid on “house music”, your ad will match the query “download house music”, but not the query “new orleans music house”. If you want to make a keyword phrase match, you put quotes around it when you enter it.
  • Broad: your ad will be served when a user enters a phrase that includes the keywords you purchased, and not necessarily in the same order. Your ad will also be served when a user enters a phrase that Google deems equivalent to your keywords, such as misspellings, synonyms or pluralizations. For example, if you bid on “denver taxidermy”, your ad will likely match the following queries:
    • “taxidermy denver”
    • “denver taxidermists”
    • “a taxidermist near denver”

    Broad match is the default, so you don’t have to do anything to specify broad match.

Think of match types like funnels. Broad matching is like a big, wide funnel that catches lots of queries. Phrase matching is like a medium-sized funnel that catches more queries than exact, but fewer than broad. Exact matching is like a funnel that doesn’t get any wider at the top, which isn’t much good as a funnel.

Google match type funnels

Also, while they don’t behave quite like match types, you can add negative keywords to an ad group or campaign. A negative keyword tells Google not to serve an ad when that keyword is present in the query. For example, if you created an ad group with the broad match keyword “denver taxidermy” and the negative keyword “squirrel”, Google would not serve your ad if someone searched for “denver squirrel taxidermy”. If you want to add a negative keyword, you put a minus sign before the keyword with no space, e.g. “-squirrel”.

Here’s a crazy stat: people search 200 million keywords in Google that have never been searched before every single day*. That probably puts the total number of unique queries that have ever been done on Google somewhere in the hundreds of billions. Your goal is to get your ads to show for any of those queries that are relevant to the products or services you sell. The broad match type is the best way to do that, and is what I use most of the time. But broad matching can also result in irrelevant traffic, so it’s a good idea to keep an eye on what keywords are driving visits to your site and add negative keywords where necessary. Most web analytics tools have a report that shows referring keywords, and the Google AdWords Search Query Performance Report shows some of the search phrases that were matched to your ad.

One trick I sometimes do is to add both an exact match version and a broad match version of the same keyword to an ad group. This allows me to see the performance of the exact match version, which is often better than the broad match version. Over time, I will bid up the exact match version if it is getting better results. For more on keyword bidding based on performance, see our article Paid Search Bidding Based on ROI.

It’s also not a good idea to just trust broad matching and not bother creating ads with variations of keywords you know are relevant to your business. Broad matching is a good way to catch keywords you don’t expect, but you should include any you do know about in your campaign. Doing so will help you understand the performance of each variation, and you can achieve higher quality scores by ensuring that text ads and landing pages are well matched to each keyword. See our article To-do List: Building a Keyword List for more on building keyword lists.

Lastly, Google’s Explanations of Match Types and Negatives: What are keyword matching options? – Adwords Help

* This stat is derived from search query data in these two posts: This week in search 1/8/10 and By the Numbers: Twitter vs Facebook vs Google Buzz

This post is part of

Two Octobers’ Local

Online Marketing Guide.

Paid Search: Bidding with Confidence

Businesses new to search marketing and veterans alike can easily come to the wrong conclusions about their pay-per click campaigns.  Imagine you pay $1 each for 200 clicks and you only complete one $50 sale. You’ve spent $200, and only earned $50. You calculate your Return on Ad Spend and you’re earning $.25 for every $1 spent on pay-per-click advertising. You might decide this channel of advertising just isn’t effective, but in fact it is far too soon to tell.

In the previous article, Paid Search: Bidding Based on ROI, we showed how you can use ROI data to determine optimal bids. The methods we described assume that you know the conversion rate of a keyword, ad group or campaign. But in fact you can’t ever really know a conversion rate, the best you can do is to estimate using historical data. This article explains how to use confidence intervals to ensure that your estimates are reasonably accurate.

For example, let’s say that a keyword has had 100 clicks and 2 conversions. Do you know what the conversion rate is for that keyword? The obvious answer is 2%, but the correct answer is “no”. From experience, you probably know that you could get fewer or more conversions in the next 100 clicks. Given a set of sample data, the best you can say is that you expect that the conversion rate falls between X% and Y%. In statistics, this is called a “confidence interval”. A confidence interval also has a “confidence level”. The confidence level describes how sure you are that the conversion rate falls between X% and Y%. For example, an 80% confidence level means you can be 80% sure that the actual value falls between the lower and upper bound of the interval. This means that there is a 10% chance that the actual value falls below x% and a 10% chance that it falls above Y%.

Below is a table of confidence intervals, with the column on the left indicating the number of conversions observed, and the row across the top indicating the number of clicks observed. The confidence level for these intervals has been set at 80%. The cells with white backgrounds show the confidence interval for each combination of conversions and clicks. The confidence intervals are expressed as X% – Y%, with X% being the lower bound, and Y% being the upper bound.

100 200 300 400 500
0 0 % – 2.3% 0% – 1.1% 0% – 0.7% 0% – 0.6% 0% – 0.5%
1 0.1% – 3.8% 0.1% – 1.9% 0% – 1.3% 0% – 1% 0% – 0.8%
2 0.5% – 5.2% 0.3% – 2.6% 0.2% – 1.8% 0.1% – 1.3% 0.1% – 1.1%
3 1.1% – 6.6% 0.6% – 3.3% 0.4% – 2.2% 0.3% – 1.7% 0.2% – 1.3%
4 1.8% – 7.8% 0.9% – 4% 0.6% – 2.7% 0.4% – 2% 0.4% – 1.6%
5 2.5% – 9.1% 1.2% – 4.6% 0.8% – 3.1% 0.6% – 2.3% 0.5% – 1.9%
6 3.2% – 10.3% 1.6% – 5.2% 1.1% – 3.5% 0.8% – 2.6% 0.6% – 2.1%

For example, if we observe 3 conversions over 400 clicks, the confidence interval ranges from 0.3% to 1.7% – I have shaded that cell pink in the table. Therefore, we are 80% sure that the actual conversion rate falls between these two values. Compare the ranges in the “500” column to the “100” column and you will notice an important fact about confidence intervals: the more data we have, the smaller the confidence interval. And the smaller the confidence interval, the better an idea we have of the actual value. But also note that there is always an interval – we never truly know the actual value from observed data. Here are a few scenarios demonstrating how this data might be applied:

  • Jane buys 200 clicks and gets no conversions and decides that paid search is a waste of money. Lisa points out that there’s a good chance that Jane’s conversion rate is as much as 1% and that she should wait it out a bit.
  • Lisa wants to bid based on a target CPA. After buying 300 clicks, she gets 5 leads. He assumes a conversion rate of 0.8%. Given that the confidence interval is 0.8%-3.1%, Lisa is being conservative by taking the lower bound of the range.
  • Jane thinks her conversion rate is 10%, but she measures 4 conversions over 200 clicks for her AdWords campaign. She realizes the data is not supporting her assumption: based on the data she can be 90% confident that her conversion rate is not more than 4%.

The main takeaway from this table is that even 500 clicks is not enough to have a very accurate idea of conversion rate, which is why I say you shouldn’t be bidding on most individual keywords based on ROI goals–there generally  isn’t enough keyword-level data to make good decisions.

If you want to test out some confidence intervals of your own, this site has an interactive calculator. Use the binomial confidence interval and change the confidence level at the bottom of the page if you want it to be different than 95%. The higher the confidence level, the larger the intervals you will get. The numerator (x) is the number of conversions you observe, and the denominator (N) is the number of clicks you bought.

The approach I like to take when bidding is to start with an idea of the conversion rate for the campaign as a whole, and set bids based on that, since I have the most data at the campaign level. Then I look at individual ad groups and change bids if the confidence interval tells me that the ad group conversion rate is likely more or less than the campaign conversion rate. Then I look at individual keywords, but only those that have enough data to produce a useful confidence interval.

At Two Octobers we use automated tools to manage bid setting according to these principals, but it’s important to understand the underlying concepts. And bids are just one lever in a campaign. Ad copy, keyword selection and the user experience are at least as important as tweaking bids. More on that to come.

This article gives a high-level overview of a very complex topic. I hope it is useful to you, but please contact us if you would like help optimizing your paid search campaigns.

This post is part of

Two Octobers’ Local

Online Marketing Guide.

Paid Search: Bidding Based on ROI

Bidding for ROI

This article explains some basic concepts related to bidding on paid search keywords based on return on investment (ROI). Using ROI to make bidding decisions helps ensure that you are spending your advertising dollars in the most effective ways possible.

To explain these concepts, we will use paid search marketers Jane and Lisa as examples.

  • Jane’s goal is to generate as much revenue as possible, but she doesn’t want to spend more than a dollar in advertising for every $5 in sales.
  • Lisa’s goal is to drive as many leads possible at a cost per acquisition (CPA) of $10.

A few definitions to start things off:

  • Click – a paid search click bought on Google, Yahoo or Bing
  • Conversion – a click-to-sale conversion. A conversion is when someone clicks through to your site, then completes a purchase. This could also be a click-to-lead conversion if your goal is to drive leads
  • Conversion Rate – the percentage of time clicks convert to sales. For example, a conversion rate of 5% means that 5 out of every 100 clicks result in sales.
  • Average Sale – the average value of a sale
  • ROAS – return on ad spend: the return in sales you are getting on your paid search investment. I will calculate this as $X in sales for every dollar spent
  • CPC – cost per click: what you are paying per click in Google, Yahoo or Bing
  • Target CPC – the cost per click you should be paying to achieve your target ROAS

Here’s an example scenario: Jane is paying $0.10 per click, 10% of clicks are converting to sales, and her average sale is $5. This means that on average she generates $5 in revenue for every $1 she spends to buy clicks. Therefore, her ROAS is $5.

If Jane is ok with a lower ROAS, she can generate more sales. Spending more per click will lower her ROAS, but the higher CPC will also drive more traffic. For example, if she can achieve her profit goals at a $2.50 ROAS, she can afford to pay $0.20 per click. Here is the math:

ROAS = Sales / Ad Spend
= (Average Sale X Conversion Rate X Clicks) / (Clicks X CPC)
= (Average Sale X Conversion Rate) / CPC

Solving for CPC, we get:

Target CPC = (Average Sale X Conversion Rate) / Target ROAS

Substituting Jane’s goal for ROAS, we get:

Target CPC = ($5 X 10% / $2.50) = $0.20

The process is similar for Lisa. Cost per acquisition is total cost divided by the number of acquisitions, or:

CPA = Ad Spend / Conversions
= (Clicks X CPC) / (Clicks X Conversion Rate)
= CPC / Conversion Rate

Solving for CPC, we get:

Target CPC = Target CPA X Conversion Rate

Substituting Lisa’s goal for CPA and assuming a conversion rate of 10%, we get:

Target CPC = $10 X 10% = $1.00

These calculations are pretty straightforward, and many paid search marketers use some variation of these methods. There are also a number of automated bidding systems that have formulas like these somewhere under the hood.

One assumption we’ve made is that we know Jane and Lisa’s conversion rates, but that is not necessarily a safe assumption. To learn more about the challenges of estimating conversion rates, have a look at this article: Paid Search: Bidding with Confidence.

And if you do not currently have the ability to track leads or sales to a keyword ad, Google Analytics is free and will do the job. If you would like help tracking performance or optimizing your paid search campaigns contact us.

This post is part of

Two Octobers Local.