Avoiding Unprofitable PPC Campaigns

How Data Analysis, Bidding Strategies, and 26 Proven Techniques Can Prevent Lost Revenue on Pay-Per-Click Search Engines

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We recently released the recording of our Dynamic Web Pages clinic. You can listen to a recording of this clinic here:

Windows Media Audio:
http://meclabs.com/cgi-bin/pl/pl.cgi?cuw

RealMedia:
http://meclabs.com/cgi-bin/pl/pl.cgi?cur

This research brief will answer the following questions:

  1. How can you tell if your PPC campaigns are profitable?
  2. How can bidding strategies impact the profitability of your PPC campaigns?
  3. What are the best techniques to optimize your PPC campaigns?
    (26 proven techniques)

1. How can you tell if your PPC campaigns are profitable?

Many site owners spend thousands of dollars in PPC engines without knowing which of their campaigns are profitable. In the first section of this report, we will present a number of test campaigns and analyze their profitability.

Consider the following three pay-per-click search engine campaigns. The chart below shows the campaign costs, conversion rate, net profit, and return on investment (ROI) for three PPC search engine campaigns.

PPC Campaign Profitability Analysis
Metric Campaign A Campaign B Campaign C
Clicks 25,333 20,204 20,863
Average Cost Per Click (CPC) $0.50 $0.50 $0.08
PPC Fees $12,666.50 $10,102.00 $1669.04
Number of Orders 500 600 545
Conversion Rate 1.97% 2.97% 2.61%
Average Order $48.12 $51.69 $17.69
Total Sales $24,060.00 $31,014.00 $9641.05
Net Profit Before PPC Fees * $9624.00 $12,405.60 $3856.42
Net Profit After PPC Fees * – $3042.50 $2303.60 $2187.38
Return on Investment (ROI) – 24.02% 22.80% 131.06%

 

What You Need To UNDERSTAND: The ROI for Campaign C was more than 100% higher than the ROI for Campaign B. But campaign B actually achieved more net profit than campaign C.

* The profit margin used when determining the net profit of these campaigns was 40%.

Utilizing the data above, we were able to make the following evaluations:

  1. Simply put, Campaign A was unprofitable. The high CPC ($0.50) and the conversion rate of 1.97% produced a loss of $3042.50 and a negative ROI. This campaign should be halted immediately (preferably before incurring the $3000+ loss).However, this campaign could be made profitable if we could somehow 1) increase the conversion rate, 2) increase the average order size, 3) lower the average CPC, or 4) raise the profit margin.
  2. Campaign B had a higher conversion rate and a larger average order. This created a profitable campaign at the same average CPC as Campaign A.
  3. Campaign C was perhaps the most interesting. Although it had a lower conversion rate, average order size, and net profit, it actually accounted for the best ROI (131.06%).
  4. Comparing Campaigns B and C yields the most interesting insights. While the ROI of Campaign C was far superior to that of Campaign B, the net profit of Campaign B was higher than that of Campaign C.Depending on the goals of your marketing efforts, you may deem either Campaign B or Campaign C more successful. Campaign B produced more net profit but required a much larger outlay of cash in PPC fees ($10,102 versus only $1669 in Campaign C).On the other hand, Campaign C produced a much higher ROI because of the lower average CPC ($0.08 versus $0.50 in Campaign B). However, this campaign may have been leaving some potential profit on the table by not bidding higher on some keyword terms.Comparing these two campaigns shows how total net profit and ROI often exist in a disharmonious relationship. Sacrificing one may get you the other. It often comes down to a question of how much you are willing (or able) to spend in pay-per-click fees. Spending more money can often increase your total net profit while reducing ROI. We will cover this topic in more depth in the next two sections.

KEY POINT: The most important element of determining profitability (or ROI) of a PPC campaign is good metrics. Without a good metrics solution in place, we would not have been able to generate the campaign comparisons above and would be left guessing which of our PPC campaigns was the most effective.

The following table further clarifies how ROI and total net profit exist in a state of tension:

PPC Campaign Profitability Analysis
Metric Campaign D Campaign E Campaign F
Sales 20 100 200
Revenue ($75 per sale) $1500 $7500 $15,000
Cost Per Click $0.35 $0.75 $1.15
Campaign Cost * $420 $4500 $13,800
Net Profit $1080 $3000 $1200
Cost Per Acquisition ( Sale) $21 $45 $69
ROI 257% 67% 9%

 

What You Need To UNDERSTAND: Campaign D had an incredible ROI of 257% but a net profit of only $1080. Campaign E increased its cost-per-click bids to achieve a $3000 net profit. Campaign F increased CPC even further and achieved a $1200 net profit.

* Campaign costs were based on 60 clicks per sale or a conversion rate of 1.67%

As you can see in the table above, Campaign E is the clear winner. ROI is often a “phantom number” that does not reflect the true net profit of the campaign. By spending more money in the PPC engines, Campaign E was able to increase its overall profit by nearly a factor of three over campaign D.

It might be helpful to think of the campaign strategy above as a kind of “bell curve” in which you strive to find the most effective balance between high profit and low cost-per-acquisition. By spending too much, it is possible to go beyond the “sweet spot” at the top of the bell curve, as Campaign F illustrates.

Related:  How The Micro-Yes Sequence Can Help You Generate More Leads and Sales

KEY POINT: If you can afford to make larger PPC buys, net profit will be your true indicator of campaign success, not ROI.

We have created a simple Excel spreadsheet that will help you calculate what you can afford to spend on keyword terms and still break even. To download the spreadsheet, visit this URL:

http://www.meclabs.com/MaxBidAnalysis.xls

2. How can bidding strategies impact the profitability of your PPC campaigns?

Consider the following chart, which shows first-position and third-position PPC bids for several keyword phrases.

Example Keyword Phrases – Comparing First and Third Position
Keyword First Position CPC Third Position CPC
dental insurance $2.54 $1.54
dental plan $2.00 $1.26
dental care $2.02 $1.80
dental health $1.12 $1.02
affordable dental $1.17 $0.82
Average CPC $1.77 $1.29

 

What You Need To UNDERSTAND: The first position bids averaged nearly $0.50 higher than the third position bids for these five popular dental-related search terms.

This chart was generated using Overture’s View Bids Tool at: http://uv.bidtool.overture.com/d/search/tools/bidtool/

The chart above is an example of the kind of keyword analysis you can do BEFORE creating a PPC campaign. It will give you a good idea of which terms are worth going after and which would most likely be too expensive.

While many merchants try to shoot for number-one ad placement, this is sometimes ill advised. Potential customers will often compare the first few links anyway. Are they getting the best deal? Do competitors have better products?

If first place can be purchased for only slightly more than second or third, we do not advise against it. However, the cost gaps between first, second, and third positions are often very large.

When researching the costs of jockeying up in position, don’t overlook the potential savings of moving down slightly in position. You will often find that you can move from (for example) 4th to 3rd for only a few cents, but you may be able to drop from 4th to 5th and benefit from significant savings.

KEY POINT: Don’t bid in round increments. Avoid bids of $0.10, $0.25, $0.30, $0.50, etc. Bidding an extra penny or two can often create significant boosts to your overall placement.

These are just two examples of how smart bidding can increase your exposure in the PPC engines without spending significantly more money. In the following section, we will look at a number of additional techniques to help increase the profitability of your PPC campaigns.

3. What are the best techniques to optimize your
PPC campaigns? (26 proven techniques)

Our search analyst Aaron Rosenthal helped in compiling this list of techniques to increase the profitability of your PPC campaigns.

  1. Focus on the most relevant keywords. These terms will simply convert better than words or phrases that are not as appropriate for your offer.
  2. If a desired keyword is too expensive, try to break that keyword down and go after words that are more specific. Identify words that may not receive as much traffic but can be purchased for less money.Do not be afraid to go after very specialized terms. The most specialized terms, while they may only see minimal traffic, have the capability and the likelihood of converting impressions to clicks and eventually sales much more easily.
  3. Think BROAD instead of (or in addition to) thinking DEEP. Rather than focusing on getting the number-one position for a few keywords, purchase as many (relevant) keywords as possible. 200 terms at $0.10 per click will usually perform much better than 15 terms at $0.50 per click.Overture, Google, and Teoma will help you identify more relevant keywords with their keyword suggestion tools:http://inventory.overture.com/d/searchinventory/suggestion/https://adwords.google.com/select/main?cmd=KeywordSandbox

    http://teoma.com/

  4. Utilize a free email newsletter or a similar opt-in email strategy. If your PPC visitors don’t purchase from you on their initial visit, but do sign up for your newsletter, you will have future opportunities to convert them to paying customers (without having to pay to reach them again via the PPC engines).Forrester Research, in a recent survey (The State of Retailing Online 6.0), still identifies “Email to house list” as the most effective marketing medium online. This is despite the negative impact that unsolicited commercial email (UCE or spam) has had on email marketing.
  5. Create customized landing pages for specific keyword bids. Review our report on landing pages here:
    http://meclabs.com/cgi-bin/pl/pl.cgi?mlp
  6. Focus on developing clear, effective ad copy. Test a variety of approaches to copy and then revise your campaigns to feature the most effective ads.While a higher click-through rate is the clearest indicator of effective copy (and will help your rankings on Google AdWords), don’t ignore how individual ads CONVERT once traffic reaches your site. Don’t set up unrealistic expectations in your ad copy.
  7. Focus on your unique value proposition. For example, if your price is lower than your competitors, experiment with PPC ads that contain actual pricing information.
  8. Avoid hype-laden PPC ads. Hype will deter many skeptical shoppers from doing business with you. It may even encourage the wrong kinds of visitors to click-through to your site, thus incurring more click fees without creating additional revenue.For more on creating marketing copy for skeptical consumers, see our report on Transparent Marketing:
    http://meclabs.com/cgi-bin/pl/pl.cgi?mtm
  9. Create a sense of urgency with your ads. This can be done without resorting to hype. Phrases like “limited supply” or “reserve yours today” can be effective.
  10. On Google AdWords, utilize negative keywords, smart display URLs, and geo-targeting (where appropriate). For more on optimizing your site for Google AdWords, see our recent report on that topic:
    http://meclabs.com/cgi-bin/pl/pl.cgi?mg2
  11. Narrow down “Broad” traffic to “Phrase” or “Exact Match” terms. We have found that using exact or phrase match searches can be at least as effective as broad search terms, if not more so.
  12. Review our 4000+ word report on Overture:
    http://meclabs.com/cgi-bin/pl/pl.cgi?mov
  13. Utilize Google AdWords and Overture, but don’t overlook smaller PPC engines as well, which will often allow you to bid less (due to less competition) and achieve a higher ROI. For more on this topic, see our report on Smaller PPC Engines:
    http://meclabs.com/cgi-bin/pl/pl.cgi?msp
  14. Comparison search engines should also not be overlooked. In previous experiments, we have found comparison search engines to be some of the most profitable sources of PPC traffic. Review our report on comparison search engines here:
    http://meclabs.com/cgi-bin/pl/pl.cgi?mcs

In addition, our search analyst Jeremy Brookins offers his succinct list of Dos and Don’ts:

  1. Don’t play bidding wars unless you have very deep pockets.
  2. Don’t rely solely on broad keywords; they’re expensive.
  3. Don’t rely solely on very specific keywords; they don’t bring much traffic and limit exposure.
  4. Don’t launch when you can’t monitor. If you spend $400 in 5 minutes, you’re probably not doing something right.
  5. Don’t over-commit. Everything should start as a test.
  6. Do wait long enough to get sufficient data before pulling the plug on a campaign.
  7. Do be patient and realistic. All things (including PPC campaign optimization) take time to figure out. Rome wasn’t built in a day.
  8. Do your homework. Know what your competition is up to and what snags this might create for you.
  9. Do use liberal amounts of negative keywords.
  10. Do be careful with those negative keywords. You don’t want to cut out relevant traffic accidentally.
  11. Do keep your campaigns easy to navigate and analyze. Poor organization can make accurate review extremely difficult, if not impossible.
  12. Do your keyword research. You never know what small word or phrase may turn into a goldmine of high-converting traffic.

These techniques have proven very effective in our own testing and long-term PPC campaigns. Utilizing them should help your own campaigns become more profitable. But most importantly, good metrics and constant vigilance will prevent you from making the mistakes that result in unprofitable PPC campaigns.

Related MEC Reports:

As part of our research on this topic, we have prepared a review of the best Internet resources on this topic.

Rating System

These sites were rated for usefulness and clarity, but alas, the rating is purely subjective.

* = Decent ** = Good *** = Excellent **** = Indispensable

30+ PPC Search Engines Reviewed, 600+ Listed ****
http://www.payperclicksearchengines.com/

PayPerClickAnalyst.com ***
http://www.payperclickanalyst.com/

Google AdWords: Best Practices ***
http://clickz.com/experts/search/strat/article.php/2196411

How to Track ROI for a PPC Campaign ***
http://forums.seochat.com/archive/t-8883

Campaign Optimization under Google’s Smart Pricing ***
http://clickz.com/experts/search/strat/article.php/3337351

Google’s Regional Targeting Power ***
http://clickz.com/experts/search/strat/article.php/3101731

Think Negative ***
http://clickz.com/experts/search/strat/article.php/3092841

How Search Engines Make Money ***
http://searchenginewatch.com/searchday/article.php/3289401

Paid Placement Alternatives to Overture and Google ***
http://searchenginewatch.com/searchday/article.php/2204191

PPC Search Engine Bidding Strategy ***
http://meclabs.com/cgi-bin/pl/pl.cgi?ppc

WebmasterWorld.com – PPC Search Engines Forum ***
http://www.webmasterworld.com/forum85/

JimWorld Forums: Smaller PPC Engines Forum ***
http://meclabs.com/cgi-bin/pl/pl.cgi?jwf

How to Assess the Quality of a PPC Engine ***
http://www.payperclickanalyst.com/article-duncan-parry-003.htm

Managing a PPC Search Engine Marketing Campaign ***
http://searchenginewatch.com/searchday/article.php/2204161

Coping with Fraudulent PPC Traffic ***
http://searchenginewatch.com/searchday/article.php/2159721

Overture Says Forget CPC, What’s Your ROI? ***
http://www.clickz.com/experts/search/opt/article.php/1436021

Using ClickTracks to Control PPC Ad Spending, Increase Sales **
http://websearch.about.com/cs/articles/a/clicktrack4.htm

Balancing Paid and Organic Search Listings **
http://searchenginewatch.com/searchday/article.php/3095871

PayPerClickGuru.com **
http://www.payperclickguru.com/

GoogleBlog **
http://www.google.com/googleblog/

Smart Pricing for Contextual Ads at Google **
http://searchenginewatch.com/sereport/article.php/3350831

Google Provides Tighter Localization **
http://searchenginewatch.com/sereport/article.php/3350821

Up Close with Google AdWords **
http://searchenginewatch.com/sereport/02/03-adwords.html

Pass Out the Cigars for Google’s New Baby: AdWords Select **
http://www.traffick.com/article.asp?aID=27

SearchDay: Google Launches AdWords Select **
http://searchenginewatch.com/searchday/02/sd0220-adwords.html

Google’s Overtures at Overture’s Advertisers **
http://clickz.com/search/opt/article.php/985751

Google Takes On Overture with Pay-Per-Click Ads **
http://searchenginewatch.com/sereport/02/03-google.html

Google Changes the Pay-Per-Click Landscape with AdWords Select **
http://websearch.about.com/library/searchtips/bltotd020306.htm

Google AdWords: Sublime Poetry? **
http://searchenginewatch.com/searchday/02/sd0513-googlead.html

The Google AdWords Happenings **
http://www.iterature.com/adwords/

Overview of Pay-For-Placement **
http://searchenginewatch.com/resources/paid-listings.html

Credits:

Editor — Flint McGlaughlin

Writer — Brian Alt

Contributor — Aaron Rosenthal
Jeremy Brookins

HTML Designer — Cliff Rainer

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