One of the big challenges in SEM campaigns is generating volume. For example, if you're willing to pay $10 for a conversion, and your conversion rate is 10 percent, you'd most likely be willing to pay $1 for each click to maximize conversions.
The available volume in paid search is limited. Search engines can't generate more searches for specific keywords. That prevents you from achieving volume targets in your campaign. Nothing in your paid search campaign strategy can change the fact that people only search so much on keywords related to your campaign -- one of the major limitations in SEM today.
CEOs for large brands, for example, might find the cost-per-conversion metrics interesting. If the campaign doesn't scale to a level that produces a significant number of new customers, it just doesn't make the CEO's radar screen.
Put another way, if your ROI on your paid search campaign is 10 times higher than what you get on your other marketing campaigns, but produces only 1 percent of your new customers, who cares?
This same factor is a limitation on the growth of smaller businesses as well. It ends up being all about getting at as much (profitable) volume as you can.
Hitting your Cost-Per-Lead Targets
Most marketers focus on cost-per-conversion targets or cost per lead. If you're willing to pay $10 per conversion, but only paying $8 on some keywords, you'd most likely be wiling to increase your cost-per-conversion target to get more conversions, assuming this increases your overall return.
With that in mind, let's take a look at how you could lose volume by paying less per conversion than you can afford to pay:
Capped PPC Bids
You may have a problem due to capped bids. You could have ultra high performance bids that aren't fully optimized due to a bid cap (that you applied). This can happen if you set a bid cap too low in your bid management tool. Remember: keywords that start approaching your cap are good performers by definition (assuming you're using a bid management tool, or if you apply some sort of cap in your Excel-based calculations).
Max Headroom: Catch 22 for Price/Position Combination
You may well have some keywords already in the number one or number two position. The good news: those keywords are working for you. You're getting a high percentage of the available traffic share. While being in the number one position doesn't always provide the highest ROI, it should provide the most traffic.
Related to this is the gap between the price you bid, and what you actually pay, sometimes known as "headroom." For example, you may bid $1.00 on a particular keyword, but end up getting charged $0.93 per click ($0.01 over the next higher bidder, adjusted for quality). According to Marin Software, a leading provider of paid search management software, which includes bidding, this gap averages about 7 percent and varies widely by industry and keyword.
More good news: your keywords are profitable. Unfortunately, any attempt to raise your bids won't have any impact on position, cost, or conversions.
Seasonality and Statistically Valid Data
Campaign performance changes from time to time. Many businesses are subject to seasonality. Some businesses see dramatic increases in conversion rates in November and December, and other businesses see a big drop in their activity in the exact same time frame.
Unless you make proactive adjustments, you might spend $10 for 10 clicks but it would yield 1.2 conversions instead of 1 conversion! Again this seems like a good thing, but more relevant traffic and conversions may be available.
To better optimize your campaigns, consider upping your bids a notch. However, be careful to make sure you're acting on statistically relevant amounts of data. You don't want to make large scale changes based on a small data sample, as this could hurt your results.