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How can I maximize my Adwords profits?

by Ben089
9 replies
  • PPC/SEM
    • |
Hi All,

I am looking for some KPIs or formulas that could help me to maximize the profits of my Adwords campaigns.

Following my scenario:
I have an 'unlimited' budget, no specific ROI target, decent potential for growth (currently ranking on positions 4-5) and have a score of various performance stats from the last 4 years.
The only goal I have is to generate as much profit as possible with the campaigns.

Theoretically my cost-of-sale ratio decreases with increased invest. However, revenue also increases so that I am making overall more profits..

The amount of data I have might provide a cost function that gives me insights at which combination of invest and CoS I could yield the highest profits for my specific Adwords setup.
If needed I also thought that the traffic estimator could provide some further information on my performance on the higher positions to get a better idea of the performance elasticity and marginal costs.

Problem is that I have no specific idea how to calculate this and I am not sure if it makes sense at all to calculate this in Adwords due to the amount of external factors that might influence the performance.

But in the end I am just looking for a ballpark figure like x invest for x% CoS should give your Adwords account the highest yield.

Does anyone have an idea how I could calculate this? Or knows a good reference?

I have been struggling with this question for years. So it would be great if we could work something out here in this forum!

Cheers,
Ben
#adwords #bidding #maximize #profits
  • Profile picture of the author LucidWebMarketing
    Hi Ben, welcome to WF.

    The good thing is that you are focusing on the right metric: profits. Most others are looking at ROI, which is not the same thing, or at CPC.

    But what you seem to do like most others is looking at only one side of the coin. I'm very good at bringing you high quality paid traffic. But it's all for naught if your landing page does not do its part in the conversion funnel. You can't expect the whole job to fall on the campaign. Do you really think a 95-character text ad will be the deciding factor in a visitor buying?

    Next is this statement:

    >> Theoretically my cost-of-sale ratio decreases with increased invest.

    Why would investing more into the campaign decrease your cost per sale? This will happen only if your conversion rate increases or your CPC decreases. Putting more money into it won't although all else being equal, you will make more profits if there's still room to grow - that is a budget that targets a higher percentage share of your keywords' search volume. If you are already at or near 100%, you won't make more.

    Your highest profits will be when you have higher click rates on your ads AND your landing page has a higher conversion rate. If you do nothing on both, you are standing still and no formula will help you.
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    • Profile picture of the author dburk
      Hi Ben,

      As Lucid pointed out profit, in most cases should be your primary KPI, every other metric should be subordinate to your primary KPI.

      You can, and should, calculate and track your primary KPI in AdWords.

      Here's the basic formula:

      (VPC - CPC) * Clicks = Total Profit

      Where:
      VPC = Value Per Click
      CPC = Cost Per Click

      To optimize your profit, simply adjust your Max. CPC in the direction that increases you primary KPI, total profit.

      Since AdWords does not provide a column for calculating profit, you generally need to export your data into a spreadsheet to calculate your primary KPI, or use a bid management tool that has the ability to calculate profits.

      Of course there are many other things you can do to optimize profit, the above just mentions a formula to calculate profits and a method to optimize bids at the individual keyword level.

      Here's a Video Hal Varian, Google's Chief Economist, did on bidding for maximum profit:


      HTH
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      • Profile picture of the author AussieBrett
        Originally Posted by dburk View Post

        Hi Ben,

        As Lucid pointed out profit, in most cases should be your primary KPI, every other metric should be subordinate to your primary KPI.

        You can, and should, calculate and track your primary KPI in AdWords.

        Here's the basic formula:

        (VPC - CPC) * Clicks = Total Profit

        Where:
        VPC = Value Per Click
        CPC = Cost Per Click

        To optimize your profit, simply adjust your Max. CPC in the direction that increases you primary KPI, total profit.

        Since AdWords does not provide a column for calculating profit, you generally need to export your data into a spreadsheet to calculate your primary KPI, or use a bid management tool that has the ability to calculate profits.

        Of course there are many other things you can do to optimize profit, the above just mentions a formula to calculate profits and a method to optimize bids at the individual keyword level.

        Here's a Video Hal Varian, Google's Chief Economist, did on bidding for maximum profit:


        HTH
        That video was informative thanks!
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        • Profile picture of the author Ben089
          Thank you all for your replies.

          @LucidWebMarketing
          Sorry that was a typo. I meant CoS increases with increased bids/invest...
          I am looking at the landing pages to optimize quality score for 'landing page experience' and conversion rates.
          I would say text ads and landing page are already well optimized, so I see my current biggest potential in choosing the right bids.

          @dburk, thank you. I can't believe I have never tried the concept of bidding under consideration of incremental cost per click. This is exactly what I was looking for and I will give this a try.

          I feel like in general there is a lack of mathematical/statistical approaches in PPC management for manual bidding or data analyses e.g. regression analyses for performance forecast etc.
          But I can't find any comprehensive lectures on this topic either. Any ideas?

          Update: I have now played around with the ICC and my existing data to determine a bid range that would provide profit maximization for a keyword cluster with consistent conversion values per click but I couldn't really work it out as the data is just not consistent enough. And the data from the bid optimiser couldn't provide any proper insights either as it always shows me that my current bids are already maximizing my profits.

          I guess the best would be to do a controlled experiment or a a/b test in a scenario where the value per click remains the same. Then I could gradually increase bids and then analyze the impact on the profits.
          Then I might be able to display that data in a graph and find the CoS range that provides the profit maximum..
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          • Profile picture of the author Oziboomer
            Originally Posted by Ben089 View Post

            But I can't find any comprehensive lectures on this topic either. Any ideas?

            Update: I have now played around with the ICC and my existing data to determine a bid range that would provide profit maximization for a keyword cluster with consistent conversion values per click but I couldn't really work it out as the data is just not consistent enough. And the data from the bid optimiser couldn't provide any proper insights either as it always shows me that my current bids are already maximizing my profits.

            I guess the best would be to do a controlled experiment or a a/b test in a scenario where the value per click remains the same. Then I could gradually increase bids and then analyze the impact on the profits.
            Then I might be able to display that data in a graph and find the CoS range that provides the profit maximum..
            You may want to take a look at the tools Optmyzr has.

            Fred Vallaeys the guy behind the services spent ten years at Google developing the Adwords platform so he has some inside knowledge that will help if you look them up.

            His blog that has some relevant content is here http://www.optmyzr.com/blog/author/fred/
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  • Profile picture of the author LucidWebMarketing
    Most people are afraid to increase bids because they think doing so will increase CPC and the budget will have to be higher. That is often not true, at least not as much as you'd think (increasing a bid 10% will not increase the CPC 10%). I do recommend increasing bids when you have a great QS. So the first thing to do is improve your campaigns to improve your QS. You'd get more clicks which leads to more profits, assuming a constant conversion rate which of course doesn't happen since it has its own variables.

    The other thing is, don't try to improve your landing page to improve your QS. Improve it for your visitors so that more of them convert. Never think ads or pages are optimized to the max, keep improving.

    Another thing is that, everything in the system is in constant flux. In other words, as you said yourself, the data is not consistent. That's because competitors are never the same and they make changes too. That's why you have to come up with new ideas and adapt to a changing environment. Stand still and you might lose.
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  • Profile picture of the author Marty Foley
    I second the above point by LucidWebMarketing about landing page / website conversion rate performance and want to expand on it...

    You can tweak your PPC platform settings all you want, and that's all well and good, but if you overlook things related to the conversion rate of the landing page and website the PPC traffic is sent to, you're overlooking a lot of low hanging fruit and leaving a lot of money on the table.

    In other words, you can't really maximize the profits of your Adwords campaigns, if you overlook conversion rate and value per visitor issues with the website.

    (Unfortunately, this this may not apply to you if you're an affiliate and don't have any control over the site the PPC traffic is going to.)

    I recommend to our ConvertMoreTraffic.Com PPC Management clients that they, first and foremost, have the latest version of Universal Google Analytics installed, if they don't already have it in place, and to have analytics conversion goals appropriate to their site (with Goal Values, even if they only generate leads), set up and configured properly.

    This will gather data valuable to conversion rate optimization efforts. There is much more to the process, but that's an important first step.

    Marty Foley ~ Traffic & Conversion Mad Scientist

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    • Profile picture of the author ppcmaestro
      Hi Ben,

      You have got quite a lot of good replies from Lucid & Marty. I appreciate their support to you on this one.

      I will want to add more -

      1. If your COS is increasing with more investment - You might add this as a column to every keyword. This will let you know about the keywords which have a lower COS, thus you can invest more on those keywords to get the more. But yes the keep the profit margins related to those in your mind.

      I would suggest you to follow Perry Marshall's 80/20 Formula for PPC. Where 80 will increase your COS, while the 20 will increase your profits.

      2. Optmyzr as mentioned by Oziboomer is an awesome tool. I would suggest you to use it. It can give effective results when it comes to Ads, Non Performing Keywords and even QS history.

      3. When you are looking at Profits, I think other nuances like QS play a minimal factor. Look to optimize, but dont overboard yourself with optimizing QS. It might lead to a confusion, where you think more of QS rather than user friendly interface and other UI related functions.

      4. Also, one question to you - What do you do about the payment page dropouts? Do you remarket them? Do you upsell to the converted customers? Do you build up a sales funnel for the ones who dont purchase and for those who purchase?

      Hope this post helped you.

      Thanks,
      PpcMaestro.
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  • Profile picture of the author Ben089
    Thanks, ppcmaestro

    I am an Affiliate and my influence on on-site conversion optimization is limited. So that's why I mainly focus on the right bidding to gain highest profits. My compensation is reflected by the Adwords revenue, that's why I want to maximize it and don't look too much on branding or attribution.

    I have set up a standard generic remarketing campaign for cart abandonments, but no email remarketing or any dynamic display ads that contain the products of the cart.
    Maybe I should add that list also to my search campaigns with higher bids but even the 'all user' list doesn't generate sufficient traffic.

    I have now implemented a custom email list to target existing customers with higher bids once they look again for generic terms. The product doesn't allow any classic up- or cross-sales that I could advertise via display remarketing ads...

    I will try Optmyzr, Thanks!
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