How To Find Your Perfect PPC Bid And Budget

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Search Engine Land Strictly Business
Oct 20, 2010 at 1:22pm ET
by Patricia Hursh

According to Marketing Sherpa’s soon to be released 2011 B2B Marketing Benchmark Report, when marketers were asked, “What are the most important challenges to B2B marketing success?” the top two answers were:

  1. Generating high-quality leads (chosen by 78% of respondents)
  2. Generating a high volume of leads (chosen by 44%)

Balancing lead quality and lead quantity is a significant challenge for nearly all B2B marketers. How do you find the “sweet spot” for your company?

PPC Advertising: A Cost-Effective Way to Generate Inquiries

It’s common for B2B marketers to utilize PPC advertising to generate online inquiries. Typically, only a portion of these inquires are deemed to be of sufficient quality to be entered into the company’s CRM system as “leads” which will be proactively nurtured and contacted. A certain percentage of these leads will become high-quality leads actively worked by the sales force, and ultimately a few will become customers and sales.

Controlling Costs

Every campaign should be managed to maximize ROI, and proactively controlling costs is a critical component of this formula.

There are many elements of a PPC program that impact cost/spend. For example, keyword scope, match type, ad relevance, day-parting and ad distribution all influence the amount of money an advertiser spends. However, the two most obvious cost factors associated with every PPC campaign are bids and budget.

Let’s take a look at each…

What is the value of a click?

As a B2B advertiser, you must determine (or estimate) the value of a PPC click. Initially, it’s important to understand the value of a PPC click in general… but ultimately, you will want to understand the value of a click for each keyword, or group of keywords, for each search network.

The best way to determine acceptable click value is to start with the value of a customer; preferably the life-time value of a customer. Life-time value takes into account things like: set-up costs, average duration of relationship, churn rate, average sales value per year, discounting, etc.

By starting with this customer value metric, you can back-into the maximum amount you should pay for a click. This graphic (provided by Google) shows a typical process for determining click value by working backward from customer value.

Click Value Calculation

In the above scenario, the B2B marketer must estimate the following metrics as a paid search prospect moves through the sales process:

  • % of PPC clicks that become registrants
  • % of registrants that become leads
  • % leads that become high-quality leads
  • % high-quality leads that become customers

This may not be easy to do, and it certainly is not an exact science… but it’s very important that every marketer tie PPC click value to customer value. Why? Marketers need to set bids (for each keyword) at a level that ensures an acceptable profit margin. This is your “profit maximizing bid level”.

Spend, and the Point of Diminishing Returns

Once you’ve determined a reasonable click value, how do you determine the right level of spend, or your optimal budget?

With PPC advertising, the more you spend, the more traffic, inquiries and leads you receive… Or not!

Savvy B2B advertisers realize that there is a point of diminishing returns; a point where increasing your budget does not deliver the expected increase in visitors, inquiries or leads.

The only way to find your optimal budget is to test… and test results are influenced by many, many things including campaign optimization, website conversion rate and competitive market conditions.

Many marketers (especially direct marketers) will invest as much money as possible as long as the click costs and resulting cost/lead generates an acceptable profit margin. This is a great approach, as long as you can cash flow the required PPC investment. The PPC cash flow equation can be a challenge for companies with very long sales cycles.

Can you spend money on PPC-generated inquiries today realizing that only a small portion of this investment will generate customers and revenue many months from now?

Managing Budgets

Budgets apply to an entire campaign and determine how often your ads are eligible to be shown (i.e. potential market exposure for the keywords in each campaign.)

Daily budgets allow you to prioritize and allocate your investment. For example, B2B advertisers should separate best performing keywords into separate campaigns and set daily budgets high enough to capture the maximum amount of ad impressions, clicks and conversions.

Managing Bids

Whereas daily budget determines how often your ad can potentially show each day, your bids play a major role in determining specific ad position relative to your competition. (Ad position is based on CPC bid multiplied by Quality Score.)

I recommend that you manage bids at the keyword level. This gives you a very precise, granular method of controlling click costs based on ROI. You can optimize/estimate keyword bids using Google’s bid simulator and Traffic Estimator tools.

Don’t forget, along with bids, you now need to proactively manage Quality Score. Bids and QS go hand-in-hand:

  • High quality keywords cost less for each click
  • High quality ads can show in a better position without costing more
  • High quality keywords allow for more clicks within your budget

Finding Your Sweet Spot

B2B search advertisers must engage in a constant, ongoing process of measuring and managing results associated with keyword bids and campaign budget levels.

  • Proactively manage the cost of each keyword click based on ROI
  • Use budgets to ensure that you are getting the maximum volume of clicks available in the marketplace at this optimal click cost
  • Continually measure the ultimate value each click returns

Find your PPC sweet spot!

Opinions expressed in the article are those of the guest author and not necessarily Search Engine Land.

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Patricia Hursh is president and founder of SmartSearch Marketing, a Boulder, Colorado-based search engine marketing agency. You can reach Patricia at patricia@smartsearchmarketing.com. The Strictly Business column appears Wednesdays at Search Engine Land.

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