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Lowering PPC Bids: A Powerful Dynamic

Posted January 3rd, 2015 by Andrew Goodman

With the holiday rush over, many advertisers will be resting up from — and taking stock of — the past six weeks of frenzied bidding, higher sales, and hopefully strong returns. But we also have to roll strongly into Q1 and do the many things necessary to succeed in a more stable seasonal environment. Those to-do lists could be long; I don’t intend to cover the whole field in a blog post.

Here today, I’d like to focus on a single underestimated weapon in the PPC advertiser’s arsenal: bidding lower.

Raising and lowering bids is such a commonplace activity that it’s all too easy to forget that more than one thing happens when you do so. When it comes to lowering bids, you accomplish not one thing, but four (!). Let’s assume you lower a few — half-dozen or so — bids in a single ad group on keywords with decent volume. What happens? (Extrapolate that more broadly if you do it in many parts of your PPC account.)

(1) Quite obviously, you immediately lower the cost-per-click (CPC) on that bucket of keywords; you can assume that conversion rates to sales will be roughly unchanged. Your CPA (cost per acquisition) is thus immediately lowered, and ideally, brought in line with targets.

(2) Because there is generally a smooth curve that leads to lower ad positions and possibly reduced impression share as you lower bids, you receive fewer clicks, and thus (while, to be sure, making fewer sales) spend less in that bucket (ad group). Such adjustments have the effect of reducing the proportion of budget you allocate to under-performing buckets within the account. Presto, then: this simple act leads to better budget allocation.

(3) If you do enough of this, your PPC budget declines as a proportion of your total marketing and IT budget. If that’s occurring because you’re taking steps to improve the profitability of your PPC campaigns during slower seasons or in softer portions of your PPC accounts, you’re improving the reputation of PPC as a performance channel, and ensuring that it has the respect of management when it comes to opening up more budget in stronger seasons or for high-performing keyword opportunities.

(4) As soon as you stop overbidding and chasing PPC auctions to a place outside of your profitability targets, your lower ad positions leave some other advertisers in positions higher than you. They may pay a few cents more per click on those keywords, and suddenly find themselves getting served more clicks on broader matches and in underperforming sectors of their accounts. Ideally, they’ll panic and overreact (develop a negative attitude towards PPC in general, pause campaigns, etc.). But even if they act rationally, they’re likely to drop their bids to adjust in much the same way you did, which drops their ad position, and reduces their impression share, reduces cost pressure in the auction. Meaning you’re on track towards hitting CPA targets and maintaining good click volume.

After any frenzied period of bidding, it’s worth remembering that “what goes up, must come down.” Sure, we all want to grow. But for sustainable growth, don’t forget the power of a lower bid. Be patient! Other advertisers just may follow suit.

P.S. I know, I know. This isn’t what our friends at the search engines want to hear. But I hope they’ve got enough of our coins in their jeans by now, from their record profits in 2014.



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