I made a big mistake this week. Luckily I caught it today and managed to fix it. I was optimizing a clients campaigns and noticed one keyword was producing conversions at a much higher rate than any other keywords. So, I decided to double the bid on that keyword to make sure I max out on impression share for that search. After a week I looked at the numbers and noticed that their costs went up over 50% but their impression share only grew 16%. So, while the adspend was still very profitable I had to make a judgement call if I should continue spending with the diminishing returns or maximize my clients ROI. There is a sweet spot for your bids, and there is a point where you are just paying Google more than you need to be paying for no reason.
Most PPC Companies Charge a Percentage of Ad Spend while Preaching ROI to Their Clients…
I am here to debunk the myth that paying a percentage of ppc ad spend is good for your ROI.
In fact, in many common cases it is very bad.
Deciding how much to bid on paid search is one of the most conflicted decisions a paid search marketer has too make. If you recall one of my older blog posts about generating five cent clicks in the most expensive niches, you would notice that I pointed out the inherent misalignment of interests of a ppc vendor who gets paid a percentage of ad spend. The theory is that the client won’t spend more unless it’s working well, and the vendor gets rewarded when his work produces campaigns that can scale well.
The big flaw in this is that the client wants to keep his costs down and the vendor wants the costs to max out within the targeted KPI. A perfect example is when your adgroup or campaign runs out of budget during the day. The goal is to generate more volume of sales. The assumption is that you can easily scale that production just by raising your budget. So, any vendor working for a percentage of ad spend will recommend raising your budget. (In theory this is sound advice because it is performing within your targeted KPI’s, why wouldn’t you max out your budget.)
In actuality, the best course of action for your business is probably to lower your bids within the ad group.
After all, if you are maxing out on spend, all that means is that you are missing impressions. Raising budgets is the expensive way to get more impressions. The responsible decision is to lower your bids to grab all those impressions at a cheaper cost.
Now, there are arguments against my logic. For example, if you lower your bids, you might end up lower on the page and generate fewer clicks and conversions. This of course is flawed logic, because you are only paying for clicks, and your landing page should convert a click equally as well regardless of the position of the page they click. (Some disagree with this, and you can feel free to test it, but my experience is that different positionsit barely makes a dent in your conversions.)
You can’t argue the lower click through rate for being lower on the page will hurt your quality scores, because quality scores account for average relative CTR for the position you are in. So, as long as your ad gets clicked more often than your competitors in that same position, you should have a higher quality score.
Which leads me to a third option. Instead of raising your budget, or lowering your bids, you can also work on improving your click through rates and quality scores which will get you more clicks, IN HIGHER POSITIONS for less money.
A PPC management company that proposes a percentage of ad spend pricing model is leaving you in a tough situation. In this simple case they have three options.
Option 1: Raise Your Budget and They Make More Money.
Option 2: Lower Your Bids and They Have More Work and They Don’t Make More Money.
Option 3: Improve Your Quality Scores and They Have Much More Work and They Possibly Make Less Money.
This is only one simple scenario where your interests are clearly not aligned with your vendors. This is the same thing with any commission paying job. You think your interests are perfectly aligned, but in reality there are all sorts of situations where they aren’t.
So, make sure to take into account the motivation behind your ppc consultants recommendation, if his recommendation is easier for him or more profitable for him, ask him if there are other options.
The Key Takeaway Here is…to either make sure your interests are truly aligned, or force your vendor to be accountable for their recommendations.
The rule of thumb I always follow when it comes to understanding Google and their algorithms is asking myself, “Is this in Google’s best interest or not?” If it’s not in their best interest, it’s a safe bet it won’t work. After all, if you were making billions of dollars a year, wouldn’t you spend a pretty penny ensuring everything you do is in your own best interests?
Make sure your interests are truly aligned…
There is more than one way to optimize a paid search campaign, make sure you are taking the way that is best for you, not the management company.
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