Keyword bidding is one of the most important aspects of pay per click advertising. Bid too low and your ad will appear so far down in the SERPs that your CTR will be too low to judge your ad’s effectiveness. Bid too high and you won’t sell enough product units to make your advertising profitable. Therefore, you must learn to optimize your bidding practices. That requires some level of skill and new advertisers should just plan to take a loss until they figure it out. How much of a loss depends on your own learning curve, but here are some suggestions to help you on your way:

• Set a daily and monthly budget – Since you are planning to take a loss early on, minimize your risk by establishing a budget as you learn.
• Be sure to bid on the right keywords – Bidding correctly is as much about targeting the right keywords as it is bidding the right amount. You can’t bid optimally on the wrong keyword so make sure you do the proper keyword research to find the keywords that most appeal to your audience.
• Find out what the top bidder for your keyword is paying – This is a simple one day test. Bid $10 and after your first click through put your campaign on pause. You won’t pay the full $10 unless the highest bidder for a keyword has overbid that amount. You will only pay 1 cent more than the highest bidder. But performing this test will allow you to see what your upper limit is. After you know that you can adjust your keyword bids to target where you want your ad to place.
• Ensure that you have tight ad groups – Putting a keyword into the wrong ad group can cost you in more ways than one. Do some experimenting and find out which keywords operate best together.
• Determine your break even point - How many units must you sell to break even on your keyword bids? If your unit price is $1 and you bid 5 cents per keyword, how many units do you need to sell to break even? How high should your CTR be to sell that many units? This is done through testing and experimenting. It might take some time to arrive at your answers but play with your keyword bids until you figure it out. Use it as a measure for all future advertising.

The most important thing for all pay per click advertisers is to set a budget. You don’t want to lose your shirt before you realize the effectiveness of your pay per click advertising. Take it slow and do a lot of testing. Measure everything.

You can do this in one of two ways: Target the same landing page in all of your paid ads or use different landing pages. Both work. If you do the latter, however, you have to make sure that each landing page is optimized for the key phrase that you are targeting and that both will achieve high quality scores. Different landing pages will yield two ads different quality scores if they target the same keyword.

Make sure both ads use your keyword effectively. Put it in your title and at least once in your description. Even if you use the same display URL and the same destination URL in your ads, you can rank both ads on the first page of results for any search query – if you are willing to pay the bid price on keywords. This could actually be very effective and you can use the top ad to drive more clicks to an ad in position 2 or 3. Clever, no?

It’s OK to have a low CTR. It’s OK to have a high average CPC. What really matters is how many conversions you get and whether that is making you money. But even if you are converting large numbers of your traffic, you could be losing money on your pay per click campaign. That’s because you’ve likely bid your keywords too high.

If you bid too high on your keywords then it doesn’t matter how many conversions you have. You will lose money. Even if all the other metrics meet your satisfaction. Lower those keyword bids and see what happens to conversions. Sometimes they go up, sometimes they go down. But what you really want to see is a return on your investment – a measurement between how much you are spending on your pay per click campaign and how much it is earning you in return. That last part of the equation is wholly dependent on conversions. And that’s why it is the only real metric that matters.

If you run several ads at once then you need to watch your CTR closely. CTR is a good measure of performance for your ad campaigns because one low CTR can drag your overall pay per click advertising effectiveness down. But before you go willy nilly and start tossing your ads, you should define what a low CTR is. It can vary from campaign to campaign and from advertiser to advertiser.

CTR stands for click through rate. In general, you want your CTR to at least be 2%. That means 2% of the people who see your ad click through to your landing page. So for every 100 people who see the ad you want a CTR of at least 2%, preferably higher. 3-5% is even better.

What affects CTR? A number of things can affect your ad’s CTR. Among them include:

• Call to action
• Keyword bids
• Ad description
• Keyword selection
• Ad title optimization
• Match type choices

You should conduct proper tests on each of the above elements to see what affects and improves your CTR. After running the proper tests on your ads and determining which elements are most effective, you can then decide whether a particular ad meets your minimum CTR. By defining a minimum CTR for each ad campaign, you have a measure to decide whether a particular ad is performing as it should.

If you are a small business owner of something like a hobby shop or crafts store and you have a very small budget, don’t think that you are left out in the cold where online advertising is concerned. The great thing about pay per click advertising is it doesn’t discriminate against budgets. You can start with as little as ten dollars per month.

If you are new to web advertising and not sure how to go about it, you can advertise without risk. Just set your pay per click settings to budget your daily and monthly ad spend. Start with $10 for a monthly budget and 50 cents or $1 for a daily budget. This allows you to test the PPC landscape to see if it will work for you.

Also, bid small for your keywords – like 5 to 10 cents per keyword. You may not appear on the page 1 of the SERPs, but you’ll still be there. Contrary to popular opinion, some people still do drill down the lower pages of the SERPs. OK, not many, but some still do. What you are trying to do is to reach those people who are in your target audience. If someone isn’t in your target audience then they won’t click your ad. That’s saving you advertising money.

Bid it right and you can make $10 go a long way. If you make any money at all on your advertising you’ll still be ahead of the game. And by testing the waters first, you can gain a better understanding of how to use online advertising without losing a lot of money.

There are two ways to increase ROI. You can cut expenses or you can earn more profit. Ideally, you’ll do both, but what if you can only do one or the other? Most of us would focus on cutting expenses. But that may not always be the best way. If you can earn more income and spend the same amount of money, wouldn’t you rather do that?

That’s what the latest blog post at Efficient Frontier is about. I agree, it isn’t obvious, but this is what we’ve been saying at Pay Per Click Journal for over a year now.

While EF puts it in different terms than what we’re used to communicating, they’re essentially saying the same thing as “increase your ROI.” By bidding on your keywords in such a way that you focus on the CTR and expected conversions versus how much you are actually spending, you can control your earnings. You know how much each unit you sell costs and you know your profit margin on each unit sold. If you know that each position of your ad placement in the SERPs leads to a certain number of conversions then you can calculate expected ROI.

Let’s use an example: You sell widgets for $20 each. You know that at position 1 for your best keyword you will pay $1 per click and make a sale for every 15 clicks. Your expected ROI is $5. But if it costs you 75 cents per click at position 2 and you make a sale every 10 clicks then your expected ROI is $12.50. These figures show that you are better off at position 2 than at position 1.

It takes constant tweaking and experimenting to figure out which position is your optimal position, but when you find it then you will maximize your earnings over time. That’s how you stay profitable with pay per click advertising.

Think of it this way: You let Affiliate A bid against your brand. No. 1, by doing so you are adding competition to the one area you have an edge – brand recognition. If you’re used to paying low on click through you will now likely have to pay more for each click because your affiliates will now be competing against you for the same keywords.

Aside from the increased cost in clicks, you’ll also be paying out more in commissions when your affiliates start closing more sales from those ads. Just because you are making more sales than you did last week, or last month, doesn’t justify your decision. What matters is that you likely would have closed those sales yourself based on two facts and one assumption:

• FACT: You were sole bidder for your brand
• FACT: The searcher queried and would have seen your PPC ad all alone in the SERP
• ASSUMPTION: Your ad and landing page were equal in quality and closing technique as your affiliate

Note that my argument is contingent on you being as good at sales as your affiliate. If that’s not true and you know it’s not true then you might let your affiliate bid against your brand. But for that to be the case you should be confident that you are losing sales yourself by advertising. Nevertheless, you could do just as well by testing new pay per click ads and landing pages and increasing your conversions. Your affiliates have other means of reaching their audiences.

There are a few ways you can stay on top of the popular keywords for your niche. One way is to consult Technorati. If your niche is politics, entertainment, real estate, or another popular category like that then it will be easy to see the latest information on what people are searching for on Technorati. But it also helps to be able to know the latest popular keywords for your niche if your niche is not so popular.

You may not necessarily bid on the most popular keywords. Everyone else is doing that. But you should know what they are so that you can leverage them. Search for less popular but related keywords and bid on those instead. The traffic may not be as high, but the competition you will face as an advertiser will be lower. It will be easier to break in the door. All it takes is knowing a little bit about the playing field within your niche.

“Better” is a variable word. How you manage your advertising campaigns depends a lot on your goals and the purpose of the advertising. Are you trying to achieve brand dominance? Then you definitely must use your brand as an advertising tool, but you also have to bid high on your keywords. However, I would not bid on branding terms exclusively. You want to bid high on all of your keywords, generic keywords included.

If you are not going for the branding effect then your branded keywords are not as important. But should you bid on them anyway? It depends.

Is your brand well known? Would people search for your brand online? How many people would search for your brand versus the generic term? If there are a lot of searchers looking for your brand specifically then I’d say bid on the branding terms. If not then stick to the generic keywords.

This has become a controversial practice in pay per click advertising. Your competition has worked hard to build a brand (as you have). Then along comes someone who outbids them on their brand name as keyword and threatens to take their business away. How would you feel? That’s likely how your competitor feels too.

Is it right? Well, there are currently no laws that say you can’t bid on brand names as keywords (at least in the U.S.). That doesn’t mean you should do it. Of course, it doesn’t mean you shouldn’t, either. But many companies are now trying to protect their copyrights and trademarks by pursuing the search engines and advertisers whenever their brand names are used for advertising. If you compete with a huge company with deep pockets then you could lose. That’s a risk that you’ll have to take (if you want to).

In TV advertising, you can’t use a competitors’ brand name. In pay per click advertising, you can (with a few limitations). But it is risky and you should weigh the risks carefully before you do it.