In search marketing, our mission is not to seek out new life and new civilizations, but rather the largest number of profitable dollars. For many online enterprises, this prime directive boils down to just:

That’s it. The simple truth is that the only ways for most companies to increase monthly profit are to increase the number of orders placed each month or the average profit per order (or both). The number of online orders per month is the number of searches times your impression share (IS) multiplied by the clickthrough rate (CTR) multiplied by your conversion rate (CR), so:

I call this The Drake Equation of Search Marketing. To some extent, it represents the actual mechanics of an online conversion. First, a search occurs. Some fraction (IS) of these result in an impression. Another fraction (CTR) of those impressions result in clicks, and some other fraction (CR) of those result in orders.

Every action we take as online marketers is intended to increase, directly or indirectly, one or more of these variables (without detrimentally impacting any of the others). But, of these factors, only the last two happen at your website. There, marketers apply landing page optimization (LPO), the purpose of which is typically considered: “to maximize the conversion rate (CR)”. However, we can see from the equation that there’s another facet of LPO whose purpose should be: “to maximize the average profit per order”. (Alternatively, one can simply combine these two factors, CR times ‘average profit per order’, to get the ‘average profit per click’, which is the overall metric by which the efficacy of various LPO efforts should be compared.)

The first three of the steps in this equation (searches, impressions, and clicks) occur on the search engine, where we do have some influence. Many people know that rank (a.k.a., position) strongly affects CTR, but so does the relative attractiveness of a listing.

PPC marketers experiment with the title, description text, and display URL in ad creatives to boost the CTR [Though again, they should really be maximizing CTR X 'profit per visit', which is 'profit per impression']. Similarly, SEOs influence organic results, since the title of a natural listing is often taken from the page’s title tag and the description from the meta tag or from text on the page. Online marketers often define the purpose of SEO to be something like “to get pages ranked as highly as possible for terms that are key to a site’s business”, but from the graphic above we can see that another facet to SEO is to make natural listings more attractive to searchers irrespective of any efforts to affect the listing’s position.

The primary factor which determines position in natural listings is ‘relevance’, which is partially found at the time of the query based on the page content’s quality and congruence with the search intent, but which is also partially determined by measures of the page’s ‘popularity’ which are calculated long prior to the query. We desire inbound links since each inbound link can be thought of, in some sense, as a vote by other website authors for our page, which boosts our PageRank. However, clicks at a search engine can also be viewed as votes for the relevance of our site, in this case, votes by the users of the search engine. Thus, click traffic becomes a self-reinforcing cycle, with highly relevant pages receiving more clicks (thus, a higher historical CTR) and therefore being treated as relevant in future searches.

The variables we probably influence the least are those at the beginning of the chain: the number of searches per month and our impression share. A massive off-line advertising campaign might drive additional searches for key terms, but as Frank Lee pointed out in ‘2012: We Weren’t Warned, Only Teased‘, even this is not guaranteed to produce traffic, let alone conversions. And, adding unique content to our site could increase our impression share, since it makes us more relevant to additional queries. But other than those, our best options are simply to promote good architecture to make our site easy to navigate (read: easy for search engines to spider) and to avoid hosting malware, or appear spammy or any of the multitude of reasons for search engines to switch our impressions off entirely.

This creates a problem for advertisers who have good-quality ads whenever poor-quality ads appear in the same set of results, especially in cases where those poor-quality ads are in higher positions. For example, I entered a search query into Google that, to the best of my knowledge, I had never used previously: [designer shoes].  Look closely at the ads that appeared on the right-hand side of the screen:

The first ad starts “Sale on Designer Shoes”. So far, so good, even though the text itself looks like it was written by someone who had chewing gum stuck on their keyboard. No big deal though, I’ll just skip that ad and go onto the next listing for “kate spade” shoes. Well, I’m male and katespade.com sounds like they probably sell women’s shoes, so I’ll skip that one as well. The next ad, however, looks a bit like a train wreck – no unique text beyond my own search query, a basically unparsable domain name, and something that looks like an attempt at Dynamic Keyword Insertion that, even if it had been done properly, would still have only inserted the words “designer shoes” one more time.

At this point, any reasonable person would simply stop looking at the ad listings (which is a real shame for ShopHousingWorks.com or Bloomingdales.com, which are further down on the page but might actually have what I’m looking for). This is what online marketers term The Pollution Effect: if some of the ads look really bad, searchers might not be willing to take the time to judge each ad on its own merits, since they might assume that ads which are placed below a bad ad are probably just as bad, if not worse.

Economists call this effect an ‘externality‘, which simply means that bad ads might impose a cost on other ads near them (in the form of a reduced click volume) by polluting the space with irrelevant or otherwise unappealing listings. On any given search the presence of one or more ads which are so bad that they cause searchers to cease examining the ads entirely (what I call “showstopper ads“) could therefore cause relevant ads to be unfairly disregarded.

“Well, so what?”, you might think. If 5% of ads are showstoppers, they should only reduce traffic by about 5% at most, right? Besides, Google has measures in place to weed out bad ads, so showstopper ads should never be a big problem. It turns out, neither of these seems to be the case.

I’ve estimated the effect of differing percentages of showstopper ads on the clickthrough rate (CTR) assuming that the ads are randomly placed, that searchers tend to examine higher-placed ads before lower-placed ads, and that encountering a showstopper ad causes the searcher to stop looking at any further ads. For each position, the ratio of the clickthrough rate at that position with some percentage of showstopper ads is compared to the CTR at that position when there are no showstopper ads.

Surprisingly, having just 5% of the ads be showstoppers likely causes a significant drop in traffic, with the ad in position #1 averaging a 5% drop, but with the ad in position #10 seeing its traffic drop by about 40%. And, the total number of clicks received by all of the ads combined drops by about 15%…all from just 5% of the listings being showstopper ads!

If 30% of the ads are showstoppers, the effects are even worse, with the ad in position #10 seeing its traffic drop by over 97% and the click traffic to all of the ads combined dropping by about 60%. Given these ratios, it’s understandable why search engines are so vigilant about weeding out irrelevant ads and those that violate style guidelines.

But recent changes to how Google serves broad-match ads in search results might make showstopper ads soon be much more common, rather than less so. I’ve noticed that Google has started carrying over ads from older searches into the ads for a new search, regardless of whether or not one is logged into a Google account at the time and also even if one has specifically turned off Google’s Web History feature and cleared the search history.

For example, I recently did a search for [buy authentic polish flag], getting ads from FlagsImporter.com, United-States-Flag.com and AmericanFlagsExpress.com in the results (among others). Immediately afterward, I did a search for [buy barometer], the results of which are shown below:

Look! There’s an AmericanFlagsExpress.com ad in there at the top of the right-hand sponsored links, and several other flag ads throughout the right-hand side. In total, this particular search shows five carryover ads (the most I’ve seen so far), representing 50% of the sponsored links on the page. As my calculations above showed, it probably doesn’t take too many low-relevance ads like these for click volume to suffer appreciably. Woe be unto you, BarometersPlus.com.

I’m certain that Google has their reasons for starting to show carryover ads, and no place more so than the internet can brilliance sometimes be indistinguishable from insanity, but frankly this practice does not seem to me to be in the users’ best interest. Performing similar searches on Bing.com doesn’t turn up carryover ads like this, so whatever’s going through Google’s head doesn’t seem to be happening elsewhere.

The lessons for marketers, I think, are threefold: First, on key terms, check to see that your ads do not rank below showstoppers or else you might be sacrificing good-quality traffic without even knowing it. Second, if Google persists in showing ads across search queries like this, know that the analysis of ad performance is going to get much more difficult, since your ad for flags might start showing in searches for barometers. (In fact, the Zappo’s leather jacket ad appeared in the search I did for “designer shoes” came just after doing a search for “leather jackets”). Unfortunately, Google’s Search Query reports might not be helpful in identifying cases where this occurs, since they include the catch-all category of ‘X other unique queries’ in the list of queries that prompted impressions. (I’ve seen reports that say ’1 other unique queries’. Why not just show me that 1 other unique query? Could it be because it was the equivalent of ‘buy barometer’ in a flag-seller’s account?) And, finally, recognize that if this practice of showing carryover ads becomes more common, then the top ad positions will become more valuable, since outranking showstopper ads might be the only way to avoid their toxic effect on clickthrough rates.  So, be prepared to pay more for placing your ads in top positions (which actually might be the reason why Google is showing carryover ads in the first place…)

Do you see carryover ads between unrelated search queries?  If so, please let me know.

But clicks actually have multiple different values, not just one, so here I list a few of the factors that internet marketers should take into consideration when bidding in pay-per-click auctions.

The first factor is exactly what Dr. Varian describes; that is, the direct revenue-generating value of a click (or, what I call the ‘base value‘) calculated for each keyword as the ‘Profit Per Conversion’ times the ‘Conversion Rate’, both of which are typically determined from recent performance data.  For retailers of tangible goods (and some intangible goods), the profit per conversion is simply the revenue per conversion minus the cost of goods sold (COGS) per conversion.  For CPA-targeted accounts, the profit per conversion is often based on the lifetime value of a customer.  Many subscription service websites (dating sites, investment newsletters and the like) fall into this category.

A second factor to consider is what I call the ‘influencing value of a site visit‘.  Growing attention is being devoted in internet marketing to cross-channel influences, like the tendency of television and radio ads to drive website visits and for website visits to drive off-line conversions via phone calls or in-store purchases.  So, even a non-converting site visit has a value insofar as it builds brand awareness, educates the visitor about product offerings, prices, availability and so forth (and, ultimately, insofar as it drives purchases through off-line channels or through subsequent searches).  For industries like real estate and auto sales where conversions occur almost exclusively off-line, the base value of a click will essentially be $0 (because the conversion rate is nearly 0%), but the influencing value can be quite high.

A closely related concept, not quite worthy of being enumerated as a separate factor, is the ‘unique value of an impression‘, which for text ads is probably negligibly low, but for the more visually rich ad formats (like banner ads and video ads) is probably a higher value.  Especially for established brands, simply showing the company’s name or logo has some value per impression which must be factored into the value per click by means of the click-through rate.

A third factor to consider is the ‘information value of a click‘ resulting from the marginal reduction in uncertainty that additional data brings.  If a keyword has gotten 100 conversions from 400 clicks, then it is quite certain that the conversion rate is near 25%, but if it has gotten 0 conversions from just 3 clicks, the per-click conversion rate is not nearly as well known.  A coin (which has a per-flip heads rate of 50%) might show no heads in 3 flips, but if the 4th flip brought the first heads, we wouldn’t be confident that the coin had a 25% heads rate (for the same reason that we would not have been confident that its head rate was 0% when we had only seen 3 flips).  Similarly, a keyword that has gotten 1 conversion from 4 clicks might actually have an inherent conversion rate of 25% like the 400-click word, but it instead might have an inherent conversion rate of 50% like the coin, or maybe even just 1% and we just happened to see one of those rare conversions by fluke.  Our estimate of any uncertain quantity, like conversion rate or profit per conversion, is actually a range of numbers, from the lowest-reasonable guess to the highest-reasonable guess, and not typically a single value.  As we get more, recent data about the performance of a keyword, that range narrows until it becomes essentially a single value.  Thus, the information value of a click for a low-traffic keyword like the 3- or 4-click word described above is higher than the information value for a word which already has a large amount of recent data, like the 400-click word.  Each click thus provides one bit of information about the conversion rate, regardless of the number of conversions that happen, and perhaps some data about the profit per conversion (if one actually does happen) and therefore each click has an information value simply from the reduction in uncertainty it brings.

In a recent blog post, Google revealed that they think that the per-click conversion rate does not change much with the position of an ad.  So, rather than try to determine the conversion rate at position 1, the rate at position 2, and so forth, dividing our data up into 10 little bins, if we know that the conversion rate does not change much with position, we can greatly reduce our uncertainty about our conversion rate estimates by pooling all of that data together in just one bin.  We can reduce our uncertainty in our estimates of the profit-per-conversion the same way, giving us a much better estimate of the base value per click.  (In fact, it is likely that this two-fold reduction in uncertainty – and the resulting increase in the ability of advertisers to derive value from AdWords – was a strong motivating factor behind why Google released this information.)

The increase in the uncertainties associated with our estimates of conversion rates and profit-per-conversion that results from subdividing data is one of the often unspoken dangers of geo-targeting keywords.  For example, one account manager geo-targeted keywords related to pet products in North Dakota separately from keywords related to pet products in South Dakota.  Of course, by doing this, it became nearly impossible to reliably determine the conversion rates and profit-per-conversion in either state, even though there were no significant observable differences between them.

Fourth, the manager should consider what I call the ‘exclusionary value of a click‘.  Getting a click on a given impression excludes a competitor from doing the same, and even getting an impression that does not result in a click still drives one competitor off the SERP.  Because available ad space is a Darwinian environment, there is rationally some positive amount that each account manager should be willing to pay per click simply to reduce their competitors’ traffic (and thus, conversion volume) even if that traffic does not have a direct revenue-generating value to that account.

In the figure below we see a typical profile of the net margin per week expected at various bids for a keyword whose click volume and cost-per-click (CPC) depend strongly on position.  Using Dr. Varian’s approach, we can determine the profit-maximizing bid for this keyword to be about $6 per click, which would give an expected net margin per week of about $400.  To bid less than this amount diminishes the number of clicks received, and thus the net margin.  And to bid more brings in traffic at a higher marginal CPC than the profit per click, thus also decreasing the net margin.

Because the profit is maximized at this $6 bid, it is also nearly maximized at bids near this value.  So, we can see that, in this example, if we are willing to tolerate a net margin that is about $40 per week less than the maximum, we can bid up to about $7.20 per click.  That is, by sacrificing just 10% of our expected profit, we can drive up the cost-per-click for the bidders in the next position higher than ours (who are likely getting a larger absolute number of clicks as well) by about 20%.  (There is another bid around $4.50 per click that also generates a net margin that is 90% of the maximum, but since this one reduces our competitors’ CPCs, we’re not as concerned about it here.)  In addition to forcing the bidder in the position above us to pay more, since each ad position in sponsored results as a general rule of thumb tends to get about 70% of the traffic of the slot above it, elevating our bid above the profit-maximizing level also causes each bidder in every ad position pushed below us to have their traffic cut by about 30%.  Provided that the exclusionary value per click of this sort of financial sadism exceeds its cost to us – which is likely in highly competitive industries – then we can bid at the higher level knowing that our profits are still nearly maximized and, further, that any extent to which we ‘back off’ in our aggressiveness (down to the profit-maximizing bid) should only increase our net margin as a result.

Of course, there are other components to consider, like the vanity value of each click, which is important when account holders insist on appearing in the first position regardless of other considerations.  But by taking each of the major different values of a click into account (the direct revenue-generating value, the influencing value, the information value, and the exclusionary value) online marketers can appropriately assess how much they should pay per click for each keyword.

In my chapter, “SEM and SEO: Core Drivers of iDirect Success,” I address the importance of applying data-driven project management to every aspect of search marketing.  For even the most basic of SEM or SEO campaigns, marketers can access up-to the minute statistics at the most granular of levels.  For someone with a more traditional direct marketing background, having such an abundance of real-time data at their fingertips can be both a blessing and a curse.  It’s easy to begin tweaking every aspect of a campaign, and tempting to react to every fluctuation in demand.  By systematically integrating data into campaign analysis, however, advertisers can start managing their campaigns with a more disciplined approach.

Dividing the chapter into two sections, one on SEM and one on SEO, I put forth a set of core strategies which are designed to help you more precisely measure effectiveness and drive continued growth:

SEM

• Comprehensive, Integrated Data Create a single reporting framework for connecting data from search engines, your internal accounting system and your bid optimization platform. Comparing click traffic and conversion data can help allocate incremental spending to campaigns that yield the greatest ROI.
• Efficient Account Structure Keywords should be categorized according to theme, product, type of customer, or stage of the buying cycle. Constructing narrow groupings enables you to serve highly targeted ads and landing pages.
• Targeted Creative Creative should be clearly stated and should ideally include words from the search query, promote your value proposition and specify your competitive differentiators.
• ROI- based Bid Management Knowing the “right” bid for a keyword depends upon your goals. If you are looking to drive revenue, you may be willing to spend more on certain keywords. If your goal is to have a very narrow cost per acquisition, you may have to sacrifice a few auctions.
• Optimized Landing Pages Optimizing post-click experience can be a game changer in SEM. Landing pages should be relevant to the keyword query and should reiterate the promise made in your paid ad.
• Test, Measure, Test Measure, ad infinitum What makes SEM such a compelling, yet challenging medium, is that no campaign ever reaches a stage of perfection. Continuous testing should be the mantra of your SEM campaign.

SEO

• Campaign Planning Before beginning, you must have a comprehensive understanding of your site, customer behavior, objectives and competitive environment. From this analysis, you can develop an extensive keyword list, categorizing terms between high-performing keywords and long-tail terms.
• Opportunity Analysis Each keyword campaign is then connected to a new or existing webpage, prioritizing high performing campaigns ahead of low-volume search queries.
• Diagnosis A thorough SEO diagnosis should include an extensive analysis of site architecture, code-level components, linking and content.
• Reporting and Analytics Depending on your level of data integration, marketers should strive to measure campaign effectiveness based on organic conversions, revenue or net margin, rather than traffic to the site.

These tips are naturally a starting point, but they can be extremely helpful for optimizing both developing and tenured campaigns. Once SEM and SEO are well understood and optimized as individual channels, you should then begin to look at the two holistically and concentrate on optimizing them together to maximize margin and volume based on specifics of your corporate strategy. To read more about how we apply the principles of iDirect marketing to search, please review the entire chapter, which includes more detailed best practices along with some informative case studies.

Video served on RAIS will initially show as a thumbnail…

Until clicked. The video opens up and extends the page, essentially pushing down all other listings. Videos can be viewed full screen without leaving the search page & can also be shared with social sites and blogs.

• RAIS will host any length of video. Videos under one minute generally work best but Yahoo reports having some clients running branding videos up to 4 minutes long.
• If video is not used, other templates include an image variation where a brand logo highlights the SERP ad and the searcher is given various actionable, deep linking options.
• Up to 4 additional landing page links can be included to show in the results so customizable links can drive traffic to top converting pages.
• RAIS ads will only currently show in the upper North placement of your brand SERP.
• Keywords included in the RAIS program will run on exact match only.
• Only brand & brand modified keywords can be included in RAIS campaigns. For example, the site ChadsRadBikes.com could have ‘chadsradbikes.com’ & ‘chadsradbikes’ but also ‘chadsradbikes homepage’, ‘find chadsradbikes.com’, ‘chads rad bikes newsletter’, etc. & even misspellings. Some of the initial participants are currently running over 400 keywords in their RAIS campaign.
• RAIS ads will replace existing sponsored search ads on the brand terms selected. Regular text sponsored search ads will appear on advanced match queries and on partner networks for those brand terms.
• Currently, the keyword set & marketplace determine pricing. RAIS beta now has a minimum cost of $15K/month but this will rise depending on spend of the KW set you want served. Higher volume keywords are more expensive and some low volume keywords will not increase pricing at all.

Here are a few additional ‘best practices’ to consider when using video in SEM:

• Online Video is generally displayed at 425 (width) by 355 (height). Import your video as close to this as possible to avoid stretching.
• Have call to action at end of video to instruct the viewer on ‘next steps’.
• Post quality content only – Why should people care? Videos should have a quality picture, sound, music as well.
• Make it easy for users to grab video and share it on rich media and social sites.
• Make sure your URL appears in the video – generally best placed at the beginning since engagement falls off rapidly after  10-15 seconds.

But since joining TSA, that part of me has been through quite a workout. Most recently, I read a blog regarding the relationship between ad position and conversion rates. In it Google reports, based on its own research study, that there is very little, if no, connection between ad position and conversion rate. Interesting. But even more interesting to me was one particular side note from the author:

“…the average [ad] position number reported by Google [is an] average over all auctions in which you participate. If you increase your bid, it is quite possible to see your average position move lower on the page! … This effect can be large enough to push your overall average position down.”

News to me—perhaps not to the SEM world as a whole—but still, news to me. I decided to dig deeper. But in order to wrap my head around this concept and truly understand how to heed its intended advice, I had to get down to the basics—and I mean basic basics.

You see, when I read a statement like the one above, my right brain immediately goes into daydream mode. It doesn’t even bother trying to decipher anything remotely mathematical. Once it sees words like “average,” “bid,” or “number,” it begins to retreat. My left brain, on the other hand, goes into overdrive (remember, it’s a bit out of shape). Dreadfully weak and terribly oxygen-deprived, it can only begin to understand if the original statement is dissected into several, smaller parts.

And so, without going into too much detail, I wound up revisiting one of the most basic concepts behind SEM, the “auction.” Before today, I thought I had this concept down. Not so. When boiled down to its most basic definition, I could finally understand why bidding higher on a keyword can actually lower one’s ad position on the page. Yes, not just as an average across an entire account, but on the actual Google page itself.

I like Google Chief Economist, Hal Varian’s take from “Introduction to the Google Ad Auction” in which he says, “Every time a query is made on Google, we run an auction.” So, every time, literally every time someone types a query in Google, a new auction is taking place. So based on a query’s popularity, an auction on that query could theoretically occur dozens to millions of times a day.

Considering that the bidding landscape is always changing, meaning you and/or your competitors are modifying bids on the same query at any given moment, your ad position is always fluctuating. What we see in the Google UI is the average ad position across dozens to millions of individual auctions. Relating this back to the original statement in question, it is quite possible to lower an ad’s position by raising its bid – either on the search query page or on average. The reason being:

• A higher bid will most likely lead to more impressions.
• More impressions means more auctions.
• More auctions means more competitors.
• More competitors means new competitors.
• New competitors means new (and possibly higher) bids to compete against.

To sum it all up, let’s say your ad was in position 2 while bidding $1.00. You raise your bid to $2.00. In raising your bid, you think you’ve one-upped the competition, but in actuality, you may have opened up the floodgates to a whole new host of competitors—wealthier, more aggressive competitors who have already taken your $2.00 and raised you another $2.00. If your $2.00 bid is now competing with $4.00 players, your position 2 ad might sink down to number 6.

Get it? If not, don’t worry. You’re probably not alone. The fact is, while breaking down a particular concept into smaller, simpler parts might help one understand each piece of the puzzle better, it is fundamentally just that… one piece of the puzzle. What about quality score, ad creative, time of day, etc? All of these factors combined are really what determine the success (or position) of an ad.

The point is, while SEM is a vastly complex, ever-changing ‘science’ that requires its experts to be well learned and versed on the latest concepts, technologies, and trends; it never hurts to just take a step back—way back—and review the basics.

You might learn something new.

You’ve got a PPC campaign that has done its job.   Its driving quality traffic to your landing page, but your page abandonment rate is really high and people are bailing almost as soon as they get there. Sound familiar?

If it does, then it should beg the question what are you doing wrong?

The best way to answer this is to take a look at it from the user’s perspective. When they click on a PPC ad there are certain things they are looking for when they hit the landing page. If you don’t meet those expectations, I can almost guarantee they will bounce.

So then, what are your visitors expecting to see when they reach your landing page?

Continuation. I’m sure your creative is well-written and includes an irresistible offer that convinced the user to click on your ad instead of your competitor. Make sure that this content is given proper real estate on the landing page. I’m talking front and center so that the user sees it quickly when they first arrive. If the offer messaged on the ad text is hard to find or if this promise is broken, they will lose faith in your product, your brand and ultimately bounce.

Credibility. Are you working with a landing page that looks shady or doesn’t have guarantees or point-of-sale assurances? If yes, then fix it. Fix it immediately.  If they’re not familiar with your site, most users will need to be convinced to trust you.  There are a number of ways to improve credibility to your landing page.  I’d recommend testing different security affiliations, partnership affiliation, as well as how you message your tagline.

Call out the call to action. Seems obvious, right? You’d be surprised at how often this is hidden, difficult to access, or missing completely from a landing page. Be completely transparent in the next step to the conversion path. This will encourage a feeling of trust and they will be more easily moved down the buying cycle.

Before investing too much more in advertising, be sure to implement landing pages that take these best practices into consideration. A well-constructed landing page will often make a dramatic difference in your success rate.

10.      “Why aren’t we ranking number one for our brand term?  I’ve been going in every day and checking and we just fell to #3!”

This is a great one.  If you do the same search over and over, Google will modify the paid search results for you on a personal level.  So if the same result keeps coming up #1 and you never click on it, guess what – eventually Google will give up and start presenting something else in an effort to try to get you to click!  It’s not immediately obvious to end-users though, so we do get the occasional CEO or Chairman of the Board of a client who drops us a note to this effect – a perfectly understandable question and one of my favorites.

9.      ”Bleeders are bad, so we should cull them wherever possible.”

I’ve heard this a LOT over the last year from various people in the industry. The problem with overaggressive culling of so-called “bleeding” keywords, particularly long-tail terms that get clicks very infrequently is, it takes money to make money; you have to accept that some keywords at any given moment in the short term will be consuming spend without conversion – it’s the cost of allowing the remaining low-click keywords to stay active so they can be the converting ones.  Culling bleeding keywords too aggressively is like going to Vegas and putting nickels into every slot machine in the casino, then slowly eliminating slot machines that don’t seem to be “performing”.  If you do that long enough, you won’t be putting nickels into any slot machine at all.  Out in the tail, you need to bet across a wide number of slot machines precisely because you don’t know which ones are going to hit this time; the key is coverage over time to capture the payoffs.  That being said, culling bleeders does make sense if they’re bleeding over a longer period – if a term is never going to convert, that’s a no-brainer.

8.      “Your quote is higher than the other agency I’m considering. Why are you so expensive?”

From time to time I’ve heard this from prospects; the question that really should be asked is “why is this other agency bidding so low?”  Is it because they are planning on putting your account on autopilot?  Like most things in life, if you go with a partner that will go all-out in a full-court press and have multiple experts with specializations in each area of search marketing working on your behalf (like TSA does), then you’re far more likely to get real results and a great ROI at the end of the day.

7.      “It’s not statistically significant, but the data we have suggests it’s performing well”

Sometimes I’ll see analyses of keywords or creatives with limited history; it’s human nature to want to put things in a box and tie a nice ribbon around them, but if it’s not statistically significant, then all you can really say is, “we have no idea if it’s performing well or poorly – yet”.  The key is to let enough data accumulate, then you’re your determination.

6.      “We have extensive bid optimization technology developed in-house”

Much of the time when an agency claims this, they do bring something substantial to the table (like TSA’s AdMax Online Marketing Platform which has, among many other features, an industry-leading bid optimization engine).  But all too often, an agency’s in-house technology behind the scenes is based on a 5-letter word starting with E and ending in L, and does not have the horsepower for your account to…OK, I’ll say it…”Excel” .  Microsoft Excel has its place of course and it’s a great tool – but it’s like a cruiser; you really need it in combination with an aircraft carrier to get the job done right.

5.      “How does your bid optimizer work.  I understand the mins and caps, but how does it actually calculate the bid recommendation?”

You have got to be kidding.  Seriously though, I get this question fairly frequently – it’s like asking Colonel Sanders, “What’s the recipe for your fried chicken?”.  First of all (ignoring the fact that he’s actually dead of course Colonel Sanders would never give it to you because he doesn’t want his competitors to obtain it.  Secondly, he doesn’t want you making the fried chicken at home!!!  If your agency has sophisticated in-house bid optimization technology, the reality is, that is key intellectual property of the company, and they can only go so far in explaining it to you  – so please give your account managers a break and stop asking them this!

4.       “I don’t care what the math says, we need to [insert action here]“

Search Marketing is the ultimate ROI-driven marketing activity; numbers are what it’s all about.  If you are presented with math-based proof that something is going on, with statistical significance etc., but choose to ignore it, take heart that the math doesn’t care what you’re saying either…

3.       “You should either leave the keyword where it is, or bid it up”

Actually, bidding a keyword down can often make perfect sense.  If you can free up some money to spend somewhere else and get relatively more conversions than you lost, of course it makes sense to bid that keyword down in position.  As humans, we suffer from an “anchoring” effect where they look at an existing position for a keyword and the only question they ask is, is it in the right place or should I bid this up?  We tend to ignore that bidding down can be an effective tool to drive higher volume and ROI.

2.       “I always bid $1.01, $1.03, or $1.05 rather than $1.00 because I figure the other guy is bidding $1.00″

This makes some intuitive sense, but in Google’s case for instance, the auction is determined not simply by your bid but also by your Quality Score; if your bid is that close to your competitor’s bid, the Quality Score difference will very likely overwhelm any such extremely minor difference.  However, I must admit some personal fondness for this strategy anyway, because it’s highly competitive, a little sneaky, and who knows, once in a long while, maybe it will make an ever so slight difference.

1. “I pushed them up, but these keywords won’t play!”

My absolute favorite.  What this jargon means is: “I bid higher on some keywords, and although position and spend both increased as expected, it unfortunately did not result in an increase in additional conversions”.  Anthropomorphizing keywords always cracks me up.  Bad keywords!  Go home or I’ll tell your Mom!

And, because this one goes to 11:

Contribute your own favorite SEM/PPC Coconut Headphone moment below!

For these reasons, Analysts and Editors in the SEM business unit have spent much of the last year drawing on their collective experience and expertise to design a new, proprietary Creative Testing Tool.

When designing the tool, TSA made the following assumptions:

• A text ad that performs well over one set of terms may not show the same performance over a second set of terms. Therefore, creative testing results should not be generalized (i.e., adding a good performing ad from one ad group to the whole account). Instead, every single ad group within an account that is rotating more than one ad should be considered a test, and discreet results should be acted upon for each individual ad group.
• CTR is not the best measure of an advertisement’s performance, even though search engine ‘Auto-Optimization’ settings will begin to show the ad with the best CTR to users more often. TSA believes that while CTR should be weighed, it is conversion rate that best speaks to an ad’s success. For example, an ad using the text “Free Beer” may generate a very good CTR, but won’t necessarily motivate users to buy something once they’re on the landing page. Therefore, TSA began preparing for use of the new tool by disabling Auto-Optimization settings on their campaigns, allowing ads to be rotated evenly.

TSA began testing the new Creative Testing Tool with clients at the beginning of the year with extremely positive results. Version 1.0 performs the following functions:

• Reviews data on each active ad group in the account, looking at all user behavior from the last time a creative change was made in the ad group to the present.
• Based on this data, the tool compares the data on the best performing ad in the group vs. the other ads in the group, using common statistical methods to identify significant differences in conversion rate, CTR and CPA.
• Based on this comparative analysis, the tool makes recommendations on which ads to pause, which to leave active, and where new creatives should be added.
• If all of the recommendations are implemented, the tool predicts the effect on the account (“client can expect x additional conversions a day based on this action”).

Results of an 82-day test for one TSA client showed that weekly use of the Creative Testing Tool resulted in a 30% boost in conversion rate for the ad groups in which pausing decisions were made. Version 2.0 of the Creative Testing Tool is currently in development, and will feature more sophisticated analytics as well as a simplified user interface.

When managing PPC search auction bids on a weekly basis, it’s fairly common to look at each keyword’s performance data for a recent time period (a week, or longer) and compare it to the performance the previous time period.  The idea is to make a fair comparison of the keyword’s recent performance to the prior performance so that you can make good bid management decisions.

If you see that a keyword’s CPA is well above its target, you might have the tendency to reduce the bid.  Too low, you might increase it.  Near the target, you might leave that bid alone.  I call this ‘Goldilocks Bid Management’ and while there are many variations of that folk tale, remember that in the version by Roald Dahl (author of Charlie and the Chocolate Factory), Goldilocks gets eaten in the end.  (Even in the versions suitable for younger children, Goldilocks still winds up running away screaming, which is probably what you’ve been inclined to do after looking at endless spreadsheets for too long.)

The difficulty in getting optimal performance with this style of bid management is not with you, dear reader, but rather with the nature of that beast called CPA.  Perhaps I can prove it to you by example.  Rather than bore you with actual performance data, I can just as easily bore you with totally made-up performance data.  So, let’s consider the simplest possible case, a fictitious keyword that acts like a metronome.  Every day, our keyword gets 10 clicks for a $1 Cost per Click (CPC).  Exactly every 50 clicks (that is, every 5 days) like clockwork it gets 1 conversion.  $50 in spend every 5 days.  10 clicks per day.  $1 per click.  1 conversion for every $50.  Here’s a very simple question for you:  What is this keyword’s CPA?

Every bid manager knows that’s there’s no such thing as keyword that behaves this nicely.  Most are much nastier creatures.  But even so, I want to know this keyword’s CPA, so, like any good analyst, I’ll make a spreadsheet.  Let’s say that I do my bid management on Mondays.  This word got a conversion the previous Monday and 1 conversion every 5 days thereafter.  (So therefore, it also got a conversion 2 days ago, on Saturday, and will get one 5 days after that – that is, this coming Thursday.)  Here’s a sample of my data:

Today is Monday the 1st.  Last week (Monday to Sunday), this word spent $70 and got 2 conversions (one last Monday and one Saturday).  So, it has a 7-day CPA of $35.  On Tuesday the 2nd, the word spent $70 the previous 7 days (as it does every single 7-day period), but got only 1 conversion in the past 7 days (Saturday’s conversion).  So, the 7-day CPA jumps to $70.  It stays there until Friday, when there are again 2 conversions in the past 7 days and it drops back down to $35.

To answer my very simple question, “What is this keyword’s CPA?”, we all know is that it’s actually $50, but the CPA that you see depends on when you measure it, and for which duration.

The actual CPA is $50.  It must be, because there’s $50 in spend for every 1 conversion.  But look at the graph – our average CPA is never $50.  Some days we see $70 and others we see $35.  (For this particular example, a repeating pattern of three days of $70, followed by two of $35.)  I call this behavior ‘The CPA Sawtooth’, and those people who don’t know about the tendency of CPA data to act like this can get hurt.

Unfortunately, if you try to avoid this problem by looking only at daily data, you won’t find refuge.  On the days in which a conversion occurs, the CPA those days is $10.  But on days when there are no conversions, your spreadsheet won’t even display a number for the CPA that day.  (This isn’t a bug in Excel, it’s a bug in mathematics.  If I spent $10 today, but go no conversions, then my CPA wasn’t $10, it’s actually not a mathematically defined number.)  If you filter out all that days where conversions are zero from your spreadsheet and only look at days where a conversion occurred (to try to get a feel for that keyword’s CPA on any given day, it will look like the CPA is only $10 (even though it’s actually $50!).

If I’m the type of manager who compares keyword-level performance data week over week, then on the 1st I’ll see a 7-day CPA of $35.  A week later, on the 8th, it will be $70.  On the 15th, back down to $35.  On the 22nd, back up to $70.  A simple alternating pattern, right?  On the 29th, will it go back down to $35?  No!  CPA is more feral than that.  On Monday the 29th, the 7-day CPA stays at $70.  It only goes back down to $35 the following week.

But, keep in mind, the underlying CPA stayed constant at $50 the entire time.  By adjusting your bids based on the Goldilocks approach, you might wind up increasing your bids some weeks and decreasing them other weeks for absolutely no underlying change in performance.

Of course, no real keyword is this well-behaved.  If instead of having 1 conversion happen every 5 days we instead say that on any given day, there is a 20% chance a conversion will happen, then on average there will still be 1 conversion every 5 days (for an average CPA of $50).  But this time, a graph of the 7-day CPA won’t be so predictable.  (This isn’t the method I personally would use to generate realistic data, but it’s good enough for the purposes of this demonstration.)

Obviously, the results depend on the specific sequence of converting days and non-converting days.  If a conversion happens on day 1, then there still a 20% chance that one will happen on day 2, and a 20% chance after that that a conversion will happen on day 3, guaranteeing at least 3 conversions this week.  So, we could go several days in a row with conversions, rather than 1 conversion every 5 days.  (Conversely, since there’s an 80% chance of not converting on any given day, we could go many days without a conversion.  If we go at least 7 days without one, then the 7-day CPA that week will actually be an undefined number.)

But, in general, the results will look as crazy as the ones shown in the graph below.  Some days, the 7-day CPA could be well below the $50 average.  Some days, it might spike above.  In some periods, it will change quickly.  In others, it will stay steady for days at a time.  In other times, it might not be possible to calculate the CPA at all!

And this is for a word that still, on average, generates 1 conversion every 5 days.  Throw in some variation in click traffic, changes in the CPC and maybe a data error or two, and the CPA will be even more variable.

The important lesson here is that the CPA you see on your screen depends in part on how you choose the timeframe and when you do you your analysis.  If you take the numbers at face value, you’re liable to get bitten.