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.

I’ve never really heard a sound argument for letting affiliates bid against your brand within pay per click advertising. Even in a closed, carefully selected way. Whether you let one affiliate do it or 100, you are cutting off your own foot.

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.

How well do you know your niche? To be a successful pay per click advertiser you need to know a little more about your niche than just the popular keywords. But you should stay on top of those keywords because the popular keywords for any niche will fluctuate from month to month. Are you taking advantage of those?

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.

Pay per click advertising is a very powerful mode of online marketing. There are several reasons why companies rely on pay per click to achieve their monetization goals. One of those is the branding effect. But is branding better than generic keyword usage in pay per click campaigns?

“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.

Pay per click advertising is keyword-based advertising. Your ad content is based on a carefully selected campaign made up of the best keywords for your business. Do those keywords entail your competitors’ brand names?

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.