Pay Per Click Metrics - page 2

by Steve Loszewski, 3/30/2006

Cost Per Click (CPC)

For most pay per click programs, cost per click is practically synonomous with bid. Google Adwords complicates this picture with the quality score. Advertisers can reduce their average CPC without lowering bids by improving click-through rates, making good landing pages, and writing good ads.

If an advertiser has a non-profitable keyphrase-ad-landing page combination, he/she might choose to try to lower his/her CPC. The easiest and best way to do this, even in Adwords, is to lower bids. An advertiser in Adwords could then try to increase their quality score from a profitable position, increasing their bid if the quality score is improved enough to make higher positions more profitable.

An advertiser with a profitable keyphrase-ad-landing page combination might choose to raise their CPC to make the combination more profitable. When doing this, the advertiser should assume that being in a higher ranking position will not increase conversion rates. There are arguments against this. There are arguments that being in a lower ranking position will increase conversion rates because the user is more likely to be browsing ad text to find what they really want instead of just clicking on the first thing he/she sees. Generally, it is best to assume that CPC and conversion rates are independent metrics. A lot of companies with stars in their eyes, wishing to be number one for their industry term and looking to increase traffic forget this. Sometimes (most of the time because the bidding systems in Adwords and Overture cause people to overbid), it is more profitable to be in a lower position. Unless there is some other value that is not represented in the numbers (brand recognition might have a value that isn't represented in conversion calculations), an advertiser should look to see what CPC maximizes profits and not pay attention to the voice in their head that says they should be number one. Pay per click advertising is (could be even more if Adwords released the details of their ranking system) very mathematical. In a world where people had time and energy, algorithms could probably be created to find ideal bids by taking profit as a function of bids and finding the bid that maximizes profit (using calculus). If there was a bid management tool that did this, I would buy it right quick.

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