Unless your PPC campaign rests on a bedrock of fundamentally sound goals, it may be doomed to underperform.
By William R. Leake
A Fortune 500 client I was working with recently spoke in almost worshipful terms about a staff member of theirs with a Ph.D. in statistics. While the client had outsourced the management of their pay-per-click (PPC) search campaigns to my firm, she also thought it would be beneficial to get some optimization recommendations from her in-house stats expert. Her colleague put together some formulas that went far beyond my ability to comprehend, and bid recommendations were magically produced.
When I asked how the formulas were designed to optimize bids, the client explained that bid levels were based on the order of importance they placed on each one of their product categories and related keywords. When I asked how we would measure campaign performance with this strategy, she got a little confused and explained the purpose of the formulas to me again.
While this client had devised a complex method for calculating bid levels based on advanced statistical formulas, the absence of one critical variable was going to ensure poor campaign results. The client had forgotten to define and factor in a campaign goal. Did she want to drive sales on those products she deemed important? Did she want to drive more website traffic around those product categories? Did she want to achieve search engine visibility and brand awareness? Or was there some other primary objective and definition of a "win"? If we don't know where we're trying to go, we can't chart a course to get there. Goal setting is the foundation of all PPC search marketing campaigns. Without goals, our optimization efforts are like throwing darts in the dark.
Most PPC search campaign goals can be filed under one of three broad categories: traffic, branding or ROI. In all categories, we try to maximize one variable against each ad dollar spent on the campaign.
Traffic Goals: Maximizing Clicks
Most new search marketers seem to instinctively begin optimizing their campaigns to maximize traffic, or clicks. This is the simplest goal to optimize to, and a great place to start for some folks. Given a specified budget, they maximize clicks by looking for the lowest cost per click (CPC) that will still allow them to spend their entire budget.
If your average CPC is $1.00 and you are consistently reaching your daily budget of $100, chances are you are spending more than you have to. Try to continually decrease your bids until you are no longer able to spend $100 per day. If you find that $.75 is the lowest CPC that will still allow you to spend your entire budget each day, you will then want to make sure that every keyword is set to pay, on average, $.75 CPC.
The limitation of this strategy is that clicks are always a cost center, but not always a revenue center. In other words, the only benefits you are certain of receiving from your campaigns are site visitors. And as we all learned when the last dot.com bubble burst, lots and lots of site visitors doesn't ensure financial success.
ROI Goals: Maximizing Returns
A better approach for most advertisers is to maximize the ROI for each dollar spent on your PPC campaigns. If you are selling products on your website, this means you want to drive the most sales dollars for every ad dollar spent. This is most commonly expressed as "return on ad spend" (ROAS), and it is calculated by dividing the amount of sales dollars resulting from a campaign by the number of ad dollars spent on the campaign. For example, if you would like to earn $500 in sales for every $100 spent on your PPC campaigns, then your goal will be a 500 percent ROAS. These numbers are illustrative, as the calculations can, should and will get far more complex when you are tracking ROAS for each keyword and each product category, and adjusting true ROI by the expected lifetime value of each type of new customer.
But what if you're not selling products online? What if you're trying to get site visitors to complete a loan application, request a proposal or register for membership? In these situations, we want to drive the most actions (applications, RFPs, sign-ups, etc.) for every ad dollar spent. This goal is expressed as a "cost per action," (CPA) and it is calculated by dividing the number of completed actions by the dollars spent. For example, if you know that you can spend up to $20 per one loan application completed on your site, your campaign goal will be to stay under a $20 CPA.
The one other variable that you will need is the conversion rate of the keyword, ad group or campaign that you are trying to optimize. A conversion rate is simply the ratio of completed actions to clicks. For example, if a specific ad group typically drives one loan application for every 10 people who click on an ad, then the ad group has a 10 percent conversion rate. Knowing your average conversion rate and your ROI goal will allow you to easily calculate the cost per click, or CPC, you can spend to achieve your goals.
Let's extend the above loan application example:
Our goal is a $20 CPA. We can spend up to $20 per one loan application completed. We have calculated that the ad group we are trying to optimize has a 10 percent average conversion rate. By simply multiplying our CPA goal and the average conversion rate, we will arrive at the maximum CPC we can spend to reach our goal: $20 * 10% = $2.00 Max CPC
Voila! (We'll take a more detailed look at how you can use ROI goals to determine bid levels in an upcoming article, "Bid Management Basics.")
Branding Goals: Maximizing Impressions
For a small, but growing number of online advertisers, the campaign goal is not to drive sales or actions, but to maximize the exposure of a brand. In PPC search campaigns, this typically translates to maximizing the number of page views or time spent on site for every ad dollar spent. This type of goal is a bit more difficult to properly optimize because it requires incorporating performance data from both search engines and web analytics systems to calculate bid levels. But this is merely a data management hurdle that I'll leave to a future article to more fully address. Alas, given that most "brand" spend is in the clutches of traditional advertising agencies, and given that most "ad" agencies can't really "add," and consider math and data to be evil four letter words, true PPC brand optimization is rarely done correctly.
Different Keywords, Different Goals
Bottom line, you must clearly define-- in advance--which goals you have for which parts of your campaign, and use those goals to drive your set-up, your measurements and your actions. You often may find it necessary to utilize different goals with different keywords. For instance, many of our clients find the need to apportion part of their PPC campaigns to ROI and another piece to brand, and then apply different financial objectives and success metrics to each piece. Without a clear understanding of what you're trying to achieve, you're not likely to be successful in the increasingly competitive world of PPC advertising buys.
William R. Leake is the founder, president and CEO of Apogee Search, an Austin, Tx.-based search marketing solutions firm. He can be reached via e-mail at leake@apogee-search.com.
