How much should you set the max cpc

[mialblue]

When handling PPC inhouse we set a limited budget of $500/month for our client's PPC campaigns and have maintained clickthrough rates below $.50. One of our clients is a credit union and only serves our local community. We've had a hard time getting the campaigns off the ground and decided to outsource the management of the PPC program. Our new SEM firm has told us that we'll need to increase the cpc significantly (over $5 in some cases) to get traffic to the site. Since there is a long lead time before purchase it is hard to quantify ROI. Do you think it's necessary to spend this much per click if the return isn't quantifiable? Is there a standard for the average click through rates?

[AussieWebmaster]

For the credit union I would almost say concentrate on organic optimization. Banking terms are very expensive and even with local qualifiers you are going to have the majors there competing.

How to measure - try a dedicated phone number for the website so people at the bank know they are ggetting calls from online advertising.

[MarketingMind]

We follow to calculate the max cpc for any promotion in following way with basic web anlytics data.... :rolleyes: Hope it helps you in some way...

If you know the details like conversion ratio for the client and the each conversion value, one can conclude on the max CPC for the entire promotion.

Conversion Ratio = 4%
Sales or Conversion Value = $50

Then we can say... with every 100 clicks coming in we can generate 4 conversions.. so calculate it for single conversion... i.e 1 conversion you need 25 clicks...
and with one conversion you earn $50 keep aside the cost (cost of production + any cost + normal profit), we assume your calculation amounted to $25, then $25 is what u can invest in the marketing.
The Max CPC = $25/25= $1. So your average CPC spend shall be $1..

[Discovery]

Hi Mail Blue,

I have worked finance related campaigns for a while. Yes, even with local targeting keyword bids that drive traffic can be as much as $5.

If you are in the loan business then you know it takes a while to convert your ad spend into revenue, perhaps 3-4 weeks. This is the time that you would be rolling the dice hoping for a nice ROI. The best way to go about this is to have excellent tracking of these leads and make sure you have early indicators of success to show you if you are on track to a nice ROI. For example track your contact ratio, truly qualified loan candidates and credit report pulls. You most likely know how many loans you underwrite as a percentage of how many credit reports you pull. Since the credit report happens very quickly after contact with the prospect you can use this as an early indicator of success. If the credit pull ratio's look promising then you can continue the campaigns, if not you can close them down before it gets too expensive. Also note, that you will need to generate at least a couple hundered leads to have a large enough sample to make an accurate assessment.

The mortgage/finance/debt space is packed with savvy competitors. You will need a highly qualified SEM that understands your industry/business to achieve the best results. Although I dont usually like to encourage more competition I would say that PPC is worth rolling the dice on.

Discovery

[andrewgoodman]

Agreed, it totally depends on the search phrase. $5 is not out of the question in mortgages and the like. Small credit union or local clientele - you are still competing with national advertisers for those placements.

It *does* take a long time to measure ROI on such campaigns, which is why it's important to generate data on ratios at different stages of the sales process (click to lead; lead to sale; etc.) This way, you can quantify something like cost per lead with a rough assumption about the likely ROI on those leads, which speeds up your learning process (not needing revenue data to help you start adjusting bids, etc.).

It might be feasible to do so at a lower CPC, but the learning curve will be much longer.

[niyogi]

I've written a script to illustrate how Google computes an ad's position and what they actually will charge:

http://www.ontok.com/adwords.php

It took me a few days to figure it out -- hopefully it will save someone else the same trouble!

[AussieWebmaster]

I've written a script to illustrate how Google computes an ad's position and what they actually will charge:

http://www.ontok.com/adwords.php

It took me a few days to figure it out -- hopefully it will save someone else the same trouble!

This is the way it is done but you cannot get the variables from other people so it is not something that can be realistically used.

[niyogi]

This is the way it is done but you cannot get the variables from other people so it is not something that can be realistically used.

A lot of people believe the situation is hopeless because it is unrealistic to get the MaxCPC and CTR from your competitors, BUT it turns out that Google reveals something: you can compute the AdRank of the ad immediately under your own ad, based on what Google *actually* charges you (CPC[n]) and the measured clickthrough rate of your own ad (CTR[n]). Suppose your ad is in position 0 getting 3.0%, that Google is charging you $.47. That is:
CPC[0] = $.47 (what Google tells you)
CTR[0] = 3.0% (what Google tells you)
Then if you take the trouble to understand the algorithm:
(a) AdRank[1] = CPC[0] * CTR[0] - .01 = $.47 * 3.0% - .01 = 1.4 (what YOU can compute)
(b) AdRank[1] = MaxCPC[1] * CTR[1]
Go look at the default values on:
http://www.ontok.com/adwords.php
So, even though you don't know MaxCPC[1] or CTR[1], Google gives away what you need to compute AdRank[1]. Most people think: "Look, since the algorithm is based on (b), it's hopeless to infer MaxCPC", and don't realize that formula (a) is a dead give away as to what your competitors AdRank is.

By adjusting your MaxCPC and seeing what Google charges per click at different positions, you can measure AdRank[1], AdRank[2], AdRank[3], ... and THEN adjust your MaxCPC to get the position you want, and thus the CPA that meets your objectives. I have developed a half-manual / half-automatic procedure to compute the AdRank[] array so that you can explicitly generate a report that says, for a particular keyword and CTR
it ACTUALLY costs you $___ to be in position 0 (per click or per action)
but if your CTR changes to __ your position will fall to 1
it ACTUALLY costs you $___ to be in position 1 (per click or per action)
but if your CTR changes to __ your position will rise to 0
but if your CTR changes to __ your position will fall to 2
...
(This isn't exactly in the TrafficEstimator) You can generate this report without knowing your competitors MaxCPC or CTR, and base it solely on the measured AdRank[] information.

[AussieWebmaster]

But the CTR is constantly changing and the Max CPC would be hard to work back given a floating CTR.

[niyogi]

But the CTR is constantly changing and the Max CPC would be hard to work back given a floating CTR.

Right -- but I think advertisers have the right to know how that floating CTR is determined. This motivates the following question:

QUESTION: how does Google "estimate"/"predict" CTR[n] for each ad, precisely?

Thus far, I have not been able to infer the answer to the above question, either from Google, from these threads, or from experimentation. The form of the answer must be a formula involving a measured number of (a) impressions and (b) clickthroughs:
(1) for the particular ad over some PARTICULAR time period (time period unknown) on the particular keyword
(2) for everyone's ad over some PARTICULAR time period
Both (1) and (2) must be at work -- Component (2) must be there because Google actually computes something for your first click (CTR[n]).

But what is the time period, and what is the method of combining (1) and (2)? I'm looking for the specific formula, not some qualitative way of thinking about it or what to do.

Given that the position and pricing is determined by the answer to the above question, shouldn't advertisers know the answer in full detail?