A bid represents the maximum amount you are willing to pay for a click on your ad. You cost per click, or CPC, is the actual amount you pay for a click. Bidding is a key part of managing your Sponsored Search account. An effective bidding strategy can help you:

• Better manage your bids.
• Allocate your advertising spend to help you receive the maximum amount of targeted traffic.
• Gain a higher return on your advertising spend.

Bidding at two levels

You can bid at two levels:

• keyword
• ad group

• At the ad group level, you set separate bids for Sponsored Search and Content Match campaigns.
• At the keyword level, you can only set a custom bid for that specific Sponsored Search keyword, or use the default bid from the ad group.

For example, if you set a custom bid of $0.50 for a keyword, it will set the bid for that keyword at that price. But if you set the keyword to use the default bid, it will use the bid you set for the ad group.

Bidding Adjustments

Bid adjustments are available for use with your account’s targeting capabilities. This feature allows you to add a premium to your current bid in the form of a dollar amount or a percentage that you are willing to add to your bid when we determine certain traffic is consistent with your selected targeting preferences. Bid adjustments are available when selecting Demographic Bidding, Geo-targeting and Ad Scheduling Targeting at the ad group or campaign level in your account. They are required to use Demographic Bidding (excluding the option to block underage users), but optional when using Geo-targeting and Ad Scheduling.

Learn more about using bid adjustments for Demographic Bidding

Learn more about using bid adjustments for Geo-targeting

Learn more about using bid adjustments for Ad Scheduling

Bidding tools

Our bidding tools enable you to view:

• Estimated monthly clicks you’d receive for a given bid
• Your share of all the available clicks, showing how many clicks you’re leaving to your competitors
• The estimated bid to get the highest potential amount of traffic¹

Your ad’s position in the search results is determined by two things: your bid and your ad’s quality index score. For a given bid, ads that have a higher quality index may be displayed in higher positions in search results. The quality index displayed for your ad can be a good indicator of its expected performance.

¹Note that these calculations are estimates only and are not guarantees of click volume.

How to determine your bid

Your bids should be based on the economics of your business, your business objectives and the performance of your site. Bid too high and you can be paying more than the click is worth to your business. Bid too low and you may not get ranked high enough in search results to receive the number of clicks that you need.

To determine how much to bid, consider the following factors:

• Maximum budget needed to acquire one new customer (CPA - cost per acquisition)
• Number of visitors who convert into customers (conversion rate)

Then you can use the following formula to help calculate your bid: cost per acquisition x conversion rate = your bid (Example: $20 x 1.5% = $0.30)

Bidding Calculation Example #1

Let’s say you have a site that sells DVD players.

Fixed Business Variables:

To break even, the most you can afford to pay for a click is $0.50 ($10 profit / 20 visitors).

It’s important to remember that not all keywords and ads convert at the same rate, so you’ll want to do calculations for various keywords.

Bidding Calculation #2

Let’s, again, use our site that sells DVD players.

Fixed Business Variables:

Marketing Variables:

Clicks: 2,500

CPC (cost-per-click): $0.40

If your CPA is less than the Value of Purchase, you are making money and may be able to increase bids to get a higher position.

If your CPA is greater than the Value of Purchase, you are losing money and may have to reduce bids.

• Set Custom Bids for Your High Volume Keywords

• Managing bids for a large number of keywords can be time-consuming. To help save time, consider setting custom bids for your highest-volume keywords and setting an ad group bid for lower volume keywords.

• Check Your Daily Spending Limits

• Ads are displayed until your account or campaign daily spending limit is reached. To ensure your ads continue being displayed (and do not go offline) after you’ve adjusted or increased your bid, you may need to adjust or increase your daily spending limits.

• Measure and track your clicks

• Tracking will help you better determine where to increase or decrease your bids based on ad groups or keywords that are driving the most conversions.

Learn more about managing bids:

• Setting Bids
• Set Your Ad Group Bid
• Set Content Match Ad Group Bids

Next: Setting Bids - Forecasting and Bidding