The infographic below (source) breaks down Google's top spenders in Google Adwords, but also highlights how CPCs (cost per click) vary across industries.
While some of these click prices are not surprising, like for health insurance or wireless Internet deals (high ticket value and/or recurring revenue), others like 'zumba dance dvd' are considerably high relative to retail prices. According to Google Shopping, these vids sell between $18 and $90. An average CPC of $5.18, even at the high end of margin, is an alarming cost.
It's also interesting to note Lowe's and Home Depot spend more on paid search per year than Amazon and eBay, with smaller catalogs. Without making assumptions about campaign efficiency, hypothetically speaking, it's possible to advertise on more keywords and drive more traffic at lower campaign spend than your competition if you run a tighter ship.
Click infographic to enlarge
So how do you run a tighter PPC ship? Here are 5 things to keep in mind.
1. Know your limit, bid within it.
Your bidding strategy requires an understanding of what you can afford to pay per click (max CPC). Very simply, if your profit margin on a Zumba Dance DVD is $20, and you can achieve a 3% conversion rate through paid search, your maxiumum CPC is $20*0.03 or $0.60. Anything higher than this and you are hemorrhaging money.
However, you often need to bid even lower than your max CPC to cover the overhead of running your paid search campaign. For this you want to estimate a target ROI percentage. This calculator can help you determine your max CPC with this in mind.
Bidding strategies are complex and beyond the scope of this article, but the key is to ensure you are not bidding based on Google's Traffic Estimator or first page bid estimates alone.
2. Always be negative.
Keyword match types have their trade-offs. Exact match is great for control, but limits your long-tail opportunity. If you go broad, you may pull in a lot of seaweed with your catch. Negative keyword research is essential when using broad match types to prevent your ads from showing for irrelevant keyword matches.
For example, a text-to-speech product bidding on "French speaking software" may be triggered for the keyword "learn to speak French." Adding "learn" to a list of negative keywords can prevent unnecessary impressions (which dilute click through rate) and irrelevant clicks.
Negative keyword research is an ongoing practice. You can discover negative keywords with the Google Keyword Tool, Google Suggest, Google Search (visit pages returned in search results for the keyword) and my personal favorite, the Search Query Performance Report.
3. Be structured.
Certain keywords deserve their own Ad Groups, negative keywords, ad text and landing pages. This allows you to optimize messaging for better click through. For example, "Zumba DVD box set" could be separated from the general "Zumba DVD" group, and "box set" added as a negative keyword to the general "Zumba DVD" group. In addition to higher click through, the more focused landing page will likely boost your Quality Score as well. Both can reduce what you pay per click.
4. Always be testing.
Testing landing pages to improve conversion helps raise the ceiling on your max CPCs.
5. Consider search retargeting
In very competitive and expensive search categories, one little-known way to work get in front of eyeballs without paying astronomical CPCs is to use search retargeting with a service like Chango, Retargeter, Magnetic or Simpli.fi. Unlike site retargeting which follows visitors who have abandoned your site, search retargeting can display your ad around the web to visitors that have not seen your site yet.
For example, let's say someone searches for "video conferencing software." She does not see your ad (you do not need to use Adwords to use search retargeting), rather she clicks an organic listing which is in the data pool used by the retargeting network. A cookie is placed on her machine including the search referral keyword. Later in the week, she checks the forecast on the Weather Network, and your ad appears. The CPM or CPC through the retargeting network could be much lower than the $35 per click charged in Google.
Paid search is an important marketing activity but it's not the only way to drive traffic. Know what you can afford to spend, keep optimizing your campaign and landing pages to improve efficiency, and look for other opportunities when costs per click exceed what is reasonable for your business.