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How do I determine the best Google AdWords bid price

Posted by Andre' Savoie on Oct 10, 2011 4:56:46 PM

If you are looking for traffic to your website, there are few tools better than Google AdWords. But before you get started you really should get a handle on making sure you know how you’re getting the best Google AdWords bid price possible.

You see, one of the beauties of Google AdWords is that it’s free to use, and doesn’t require an agency to manage it for you. But that’s also one of the drawbacks. After all, if you were to negotiate your own TV ad rates or billboard rates without an intermediary, how do you think that would end up?

This is the basic problem most people encounter when they start on AdWords – figuring out what to set as a fair bid price?

AdWords Basics

The first that you need to know that AdWords is a pay-per-click service so when your ad appears, you are charged every time someone clicks on your ad, not when it appears.

This is a major difference between actually paying for clicks and paying for impressions (display advertising)!

The amount you are charged is your winning Google AdWords bid price. Therefore, you want to keep it as low as possible. But you still need to bid high enough to ensure that you actually get the click – which means your ad position needs to be high enough so the user sees it.

Determining the right bid price

Trial and error is one way to figure it out; many have done this, which is at least partially why Google’s stock price is so high. But the secret to understanding what you need to do, to get the best Google AdWords bid price, is understand how the bidding process actually works and then putting that knowledge into action the next time you bid.

The bidding system that Google employs is called a Vickrey auction; named for American economist William Vickrey, the auction is a sealed-bid auction, in which bidders submit bids blindly. When the auction ends, the highest bidder wins as in any other auction, but unique to the Vickrey auction, the winner only pays the amount of the second-highest bid made. According to Vickrey the knowledge that you will pay less than you bid, provides the incentive to bid your high-end price or true value of the item.

Taking this method and moving it into the virtual economy, a Vickrey auction benefits the advertiser by increasing the value of their ad dollars (pay less for more) and benefits the seller (in this case Google AdWords) by ensuring that more advertisers will invest their dollars with their service and they will make more in volume rather than price per unit.

Therefore the strategy would be:

  • Tommy wants the keyword ‘roofing’ to promote his construction business and so do Kyle and John.
  • Kyle bids $1, John bids $1.25 and knowing the he’s bidding in a Vickery auction, Tommy bids $2.25.
  • When he wins the auction, he will pay only the $1.25 bid John made plus one cent for a total of $1.26 or the AdWord. This saves Tommy $.99 per click.

There is of course always a risk when utilizing this method of bidding, in that you are not alone in the knowledge of how they process works and so there is a risk of having to pay more than you want to. Let’s look at our construction business owners again.

  • This time, Tommy wants the keyword ‘siding’ to promote his construction business and again, so do Kyle and John.
  • Kyle again bids $1, but John has learned the system and bids $2.15, knowing he did well the last time, Tommy again bids $2.25 and wins again.
  • This time however, he will pay $2.16 John’s bid plus one cent for a total of $2.16 or the AdWord. This time Tommy only saves $.09 per click. Of course the other way to think about it is that it costs Tommy $.90 per click.

Other considerations: Desired ad position

Another major component of choosing the right bid price is having a better understanding of ad positions. Ad position refers to the spot on the page where your ad appears. So while vanity or ego might compel you to shoot for the highest price for a bid, most Google AdWords professionals would tell you this isn’t always the best practice.

Here are a few considerations:

  • The #1 ad spot is the most expensive, meaning you will get the fewest clicks for your budget
  • Placing bids that place your ad in spots 2-4 will gain significantly more clicks while still keeping your ad visible above the fold
  • Bids that appear low on page 1 will have trouble getting clicks, and are considered lower value as users may not take them seriously due to the low ad position

Our recommendation: shoot for spots 2-4 on ad position.

In Summary

So, it’s plain that while the benefits can be great for your business if you get lots of clicks, it can be a two edged sword. If you end up paying a high price per click, it can eat into your ad budget quickly and significantly. But if you watch for trending keywords and find ways to tie your business to them and make smart bids, you can rest assured that you know that you’re getting the best Google AdWords bid price.

After reading this blog post, if you still have questions about Google AdWords or would like help, please contact us today via email info@mywsiconsultant.com for a free consultation.

 

Topics: display advertising, AdWords, benchmarking, PPC, website traffic

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