PPC Bidding Strategies: Prudence vs. Aggressiveness

When you start a new PPC campaign, is it better to start out with low bids, and then gradually increase them to gain better position, more clicks and better ROI? Or is it better to start out with high bids, and then lower them over time to obtain optimal cost per conversion?

The right strategy for your company depends on your situation and objectives. So let’s look closely at these two extremes; a Prudent Strategy and an Aggressive Strategy.

The Prudent Strategy

A prudent bidding strategy is most appropriate for companies that:

1. Have limited advertising budgets
2. Have plenty of time for testing and refining
3. Start their campaigns with thousands of keywords and then view performance in the first weeks of the campaign as research that shows which keywords perform best and which should be expanded upon (known as keyword stemming).

The key to a Prudent Strategy is to set your bids just high enough to obtain a reasonable position for your top-performing keywords. Bid just high enough to get into positions 4 through 8, so that your ad appears on the first search results page, without paying a premium for positions 1 through 3.

Then monitor your results, paying special attention (as usual) to the keywords that produce conversions. For these, increase the bid price gradually until the cost per conversion levels out at, or below, the maximum you defined earlier.

There are pros and cons to this strategy. The advantage of the Prudent Strategy is that the risk of overspending or spending unprofitably is low. The disadvantage is that it can take weeks, even months, to ramp up a campaign – which tends to irritate impatient clients and CEOs.

The Aggressive Strategy

There are also valid reasons to employ the strategy of starting high, then going low. Let’s call this an Aggressive Strategy, which includes the following:

Rapid Results. A need or desire to collect initial click and conversion data quickly – so that bidding and keyword refinement can happen more quickly. For example, some campaigns, especially for business-to-business (B2B) companies, are targeted to such a specific niche that only a small number of people are searching for the relevant keywords. In such a situation, unless bidding is aggressive at the beginning of the campaign, it may take several months to accumulate enough click and conversion data to guide refinement decisions.

Competitive Advantage. A need or desire to break into a competitive market and try to grab significant market share. However, do not fall into a common trap: believing that your company “needs to be” within the top three positions for competitive terms. Many companies, large and small, experienced and inexperienced, run their campaigns according to this attitude. The impulse to target only the top three positions may be more inspired by ego than by good marketing sense.

The fact is, unless your campaign has significant branding objectives, your bidding strategy should always be guided by profitability. That means getting the maximum number of conversions at the minimum possible price. Insisting on showing in the top three results is not always the best way to do this.

Halo Effect. Starting a new campaign with relatively high bids can be beneficial because the resultant high ad position results in higher CTR, which is a significant factor in obtaining a higher Quality Score (QS). (I’ll go into detail about PPC Quality Scores in a future installment.) A higher QS, in turn, helps bump your ad’s position even higher — possibly at a lower CPC than competitors whose bids are higher. This “halo effect” persists, even if you later lower your bid.

So here’s how an Aggressive Strategy works: you bid high on all your ad groups and keywords – aiming to be within the top three ad positions for as many keywords as possible. As you accumulate click and conversion data, you should lower bids on keywords that are producing conversions whose cost is higher than your target. For keywords that produce a significant number of conversions, you gradually add other keywords that are variations on those terms.

Next Monday I’ll run through the methods and best practices for determining how and when you should adjust keyword and ad group bid prices. As usual, let me know your comments and questions via the feedback form below.