White Paper Demonstrates How to Calculate Optimal Bid Amounts For a Pay Per Click Advertising Campaign

Pay per Click (PPC) Management Company at Sayu.co.uk explain how online advertisers using PPC programs such as Google Adwords can calculate the optimal bid amount for each keyword that will give the best return on investment (ROI)

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Dr. Gerda Arts, Head Data Analyst at Sayu (http://www.sayu.co.uk) recently released her new white paper titled "Optimal Bidding for Pay Per Click Advertising." Based on years of practical experience with PPC programs such as Google Adwords and Yahoo Search Marketing, Dr. Arts explains how a PPC advertiser can calculate the optimal bid amount for a keyword that will give the best ROI.

PPC advertisers essentially compete in a real-time auction where the advertiser sets the maximum amount they are willing to pay for every click they receive from their ad placed with the search engines. For many PPC advertisers it is of utmost importance to appear in top positions in the sponsored listings, however it can be expensive and at times unprofitable to appear in such high positions.

Dr. Gerda Arts explains: "The key advantage of an advertiser's ad gaining a high position is that it is likely to result in more traffic to their website, than if the ad was at a low position. However, a high position will be more expensive, and may not be the most profitable option. We therefore need to determine what the optimal position is, which depends on the following aspects:

1. How the position of an ad changes when the Cost Per Click (CPC) changes

2. How the Click Through Rate (CTR, percentage of impressions resulting in a click) changes when position of an ad changes

3. What percentage of clicks results in a sale or lead (conversion rate)

4. What the value of a sale or lead is to the advertiser"

Dr. Gerda Arts clearly exemplifies in her white paper how advertising in high positions with PPC programs is not always the most profitable, and reveals in her practical example how the optimal keyword bid can be calculated to ensure the maximum profit is made from each keyword.

"Suppose the CPC for your ad in top position is 50p. If the conversion rate is 2% we need on average 50 clicks to get an order, so it will cost us on average £25 (50 clicks x 50p) to get an order. If that is the same as the margin, it would not be worthwhile."

For advertisers using the Yahoo Search Marketing PPC program it is possible to determine how much one needs to pay for each position, as all keyword bids are public. With Google Adwords, keyword bids are not made public and hence it does not seem possible for an advertiser to know how the position of a keyword is affected by the CPC.

Dr. Gerda Arts however reveals in her white paper how it is possible to accurately estimate with Google Adwords how the position of an ad changes when the bid is changed, and how the CTR relates to the position of an ad.

Using statistical models based on historic data Dr Gerda Arts can estimate the profit that can be made per 1000 impressions, for each possible CPC. By increasing the CPC to a point immediately before the profit begins to decrease she can ensure the best ROI is achieved with each keyword.

"We use historic data to estimate how the position changes when the bid is changed using statistical regression techniques. The relation between the CTR and position is also estimated using these techniques based on historic data."

Dr Gerda Art's complete white paper can be found following this link: http://www.sayu.co.uk/bid-optimisation-white-paper.html. Her practical example clearly demonstrates how it is possible to reduce the overall CPC and increase the quantity and quality of traffic that is provided by a PPC Internet advertising campaign.

Sayu Ltd. (http://www.sayu.co.uk) specialise in Pay per Click management services. By utilising advanced statistical techniques, long tail marketing and proprietary automated bidding software we can reduce overall advertising spend and increase the quantity and quality of traffic that is provided by a client's internet advertising campaigns. To organise a free health check of your existing PPC account and a free 30 day trial of these pay per click management tools and services please call the Sayu team today on 0800 634 8283 or visit http://www.sayu.co.uk/free-ppc-healthcheck.html for more information.

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Tracey Simpson