PPC Ninja Blog

How to Calculate Bids to Meet Your AdWords Campaign Goals

This post is about CPL – Cost Per Lead, and CPA – Cost Per Acquisition/Action (Or any other CP-Something that makes your boss or costumer happy). It’s important to understand the user flow from the click until he reaches the final goal of your AdWords campaign – the acquisition. Most of the times the flow is simple:
Click > Lead > Purchase
The clicks bring the users to the landing page, in which, they can leave their details. These details will enable the sales team to contact the users, aiming to generate a sale. But sometimes the flow is a bit more complex so make sure you understand it before you calculate your bids, otherwise your calculations might be based on something wrong.

Everyone knows what their CPL goal is (well, almost everyone…). So I’ll do my best to keep the first part as short as possible. It’s actually the base for the second part so make sure you read and understand everything before applying this on your campaigns.

CPC vs. CPL

Let’s say that you have a CPL goal of $20.
A keyword converts at $23 and have an average Lead to Sale rate (We’ll get to it later), which means that you convert in a price 15% (3/20, 3 is the difference between the actual CPL and the CPL goal and 20 is the CPL goal) higher than you should.
If the max CPC for this keyword is $1.5, in order to meet your CPL goal you have to decrease the bid. The calculation is:
Max CPC * CPL goal / Average CPL = New Max CPC. 1.5*20/23=1.3.
$1.3 is the maximum bid you can afford for this keyword.

Now it’s all coming down to the CPA.

If a keyword gets you leads in $5, but your sales team can’t convert the leads into sales, it still isn’t profitable. Even though you kicked your CPL goal out of the park.
For the next part you’re going to have to export your sales data from your CRM. You can also use offline conversions for tracking sales within the AdWords interface. If you don’t know how – feel free to ask in the comments and I’ll do my best to help you.

Let’s say your CPA Goal is $100. One of your keywords converts into leads in $10 (Max CPC is $3) and one of every 12 leads converts into sales. It means that your CPA is $120, $20 more than it should be.

From here the calculation is simple:

Max CPC * CPA Goal / Average CPA = New Max CPC. 3*100/120 = 2.5
2.5 is the maximum bid you should use for this keyword.

What if you convert under your CPA Goal?

One way is obvious, increase your bid (by how much?).
Second way is to leave everything as is.
Third way is to decrease your bid even more (wait, what?!)

This part will focus on how to choose between those 3 options, and it all comes down to two parameters: Avg. Position and Search Lost IS (rank). These two will help you decide which of the options you should choose. (Spoiler Alert: it’s never the second one)

In the last post, I wrote about 5 Tips That’ll Help You Optimize Your AdWords Campaigns. Reading the part about campaigns showing the message “Limited by Budget” will help you to understand the following.

If there’s still room to get more traffic from these words, do it! My recommendation is usually not to raise the bids too much because then you’ll have no way to tell if you’re now over paying. Do it 5-10% at a time after ReExamining your data.

If you are already in a good position with Search Impression Share of 100%, you have no reason to raise your bid and I’ll highly recommend you, even, to decrease it slowly over few days, and see when your Avg. Position or impression share decreases.

In the next post I’ll explain what Marginal Cost is in the aspect of PPC advertising and how to determine how much it’s still profitable to pay more in order to get more conversions. I might take some time because it’s not that simple, but believe me – it’ll be worth it.

If something wasn’t clear or if you have any questions, feel free to ask anything in the comments below, I promise to do my best to answer!

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PPC Team Leader at a leading financial company, and author at PPCNinja Blog.

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