In Part 1 of this series, we cited "An Empirical Study of Search Engine Advertising Effectiveness" which concludes that conversion rates are flat across positions for certain engines. Taking this study into account, you should not determine bids by the position they will appear on the page, but rather the amount of money you are able to spend per click and remain profitable.

Every keyword in your account will drive users to a different shopping experience and therefore, drive a different sale amount. Managing your keywords to the sales amount will help your company spend your search dollars more efficiently and drive more profitable orders.

One example of this bidding strategy would be:

Sales Per Click*Advertising to Sales = Bid [SPC*A/S=Bid]

 

In the table above we've run the keywords through this formula, putting 75% of sales back into advertising (A/S). You should work with your financial department to figure out what A/S percentage will be most profitable for your account. Sales per Click is calculated by taking revenue divided by clicks.

These new bids will push well performing keywords into higher positions, giving them more visibility and giving you the opportunity to drive more orders. At the same time, keywords that are spending too much will be lowered to a more cost-effective level.

Based on the data you receive in your account, you should build reports for three different time periods (typically: 7, 14, and 30 days) to analyze keywords. By looking at different time periods you will be able to better account for seasonality and recent trends. This will also prevent a quality keyword that has had a bad week from being pushed down for too long.

One downside to this style of bidding is it does not take sales margins into account. If you are able to pull in margin-level data per keyword, you can take this strategy one step further and adjust your bids based on the profitability of each keyword.