Bidding for Keywords

Besides your daily budget, you will need to set a maximum bid that you are willing to pay as a Cost Per Click (CPC). This require some trial and error to get right. Being the highest bidder is not really what that you want. Instead, you want to get the most quality clicks you can for your budget. If you bid too high, your CPC will be too high and will eat up your budget too fast; if you bid to low you will not get enough clicks and hence enough sales.

Never Bid More Than the Minimum Bid : This strategy focuses on cost containment. Given a vast assortment of search terms, it is likely that some top bids will be only as high as the minimum bid. These terms will most likely be less popular terms that don't generate a significant amount of clicks.

This strategy assumes that even where the top bids are $1 or more, some visitors will read through the entire list of advertisements, and click on much lower bids. As of the writing of this article, Google AdWords bids can range in price from 5 cents, to $50.

Bid on AS MANY relevant keywords as possible. If you’re only bidding on a dozen keywords then you’re probably bidding on the same ones as all your rivals and you’ll end up having to pay too much per visitor. If you can think of interesting new combinations of keywords that none of your rivals are bidding on, you’ll be able to get high up the results very cheaply. Of course, these less common keywords get searched for less often and will therefore bring in less visitors, but because you’re paying less, these visitors are potentially more profitable.

Position Yourself Next to a Weaker Competitor : The thrust of this strategy is to position your listing as high as possible, while looking critically at competitor's listings and offers. You then position yourself next to a competitor whose price is much higher than yours for the same item, or whose offering is in some other way uncompetitive with yours, thereby making your offering seem even more attractive.

The 'Steady State' Strategy : This strategy is similar to the 'Never Bid More Than the Minimum Bid' strategy, but with a twist. You calculate the amount that you are willing to pay for each qualified customer that lands on your site, and always bid exactly that amount. For example, let's say that you calculate that you are more than willing to spend $1.35 for each qualified customer who lands on your site. You simply bid $1.35 on your best keywords, regardless of what others around you bid.

This strategy is often employed by bidders who take a "hands off" approach to their bids. They simply want to set the account up once, and let it run on 'autopilot', without much (if any) maintenance

For New Guys on the Block : You might try starting with a bid of $1.00, and see what happens for a day or two. Then gradually raise or lower the bid, depending on results. If clicks consume your daily budget in a couple of hours, then lower your bid. If the advertisements are not getting many clicks, then raise your bid. Continue this process until you find the optimal bid.

if you’re just starting out on your campaign and you do not have figures like your Visitor Value yet, then you
can start by driving around fifty to one hundred visitors to your website per day, on a tight budget. The purpose is to obtain figures like the conversion rate of your website, your visitor value, and also other numbers like the cost/conversion.

Visitor Value : The value of each visitor at your website. If for example, you make a profit of $10 for every 100 visitors to your website, then your Visitor Value is simply $0.10.

Conversion rate : Tthe percentage of your visitors that convert to customers.

Cost/ Conversion : How much money you need to spend on your Adwords campaign to convert each visitor to a paying customer.

Once you obtain such important figures, or if you have such figures before you start your Google Adwords campaign, you need to fine-tune your campaign for maximum profitability.

One rule of thumb is that you can never bid more on each click than your Visitor Value. If each visitor costs more than the value he/she can bring you, then you are losing money on each click.