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A few months ago, Google released a couple of new alternatives to the 'maximum cost-per-click' bids on Adwords, called Preferred Bidding and Budget Optimiser.

Preferred Bidding allows you to specify how much you'd like to pay for each click on average, and Adwords will adjust your bids accordingly. Budget Optimiser takes your daily budget and tries to generate as many clicks as possible for your money.

But is this really what you want to be doing? Both of these options are set at campaign level, and neither looks at the conversion rate of individual keywords or Adgroups, or indeed the value of a conversion.

Consider first the Preferred Bidding option. The idea is that if you fix your maximum bids, the actual amount that you pay per click may vary at different times of the day, or from day to day, depending on what other advertisers are doing.

This is quite possibly true, but is there really a fixed cost per click that you 'should' be paying for every keyword in your campaign. Clearly, most retailers sell a wide range of products, all with different prices and profit margins, and so the amount that they can afford to pay per click (and indeed the most profitable bid) must vary similarly.

Also, the conversion rate is going to be far different for different types of keywords - it's widely accepted that somebody searching for a generic term like "digital cameras" is far less likely to buy from you than somebody search for a much more specific term like "Fuji FinePix S5700", since they are almost certainly still researching which camera to buy.

Even if they have the same average order value, the lower conversion rates of these generic terms means that you can afford to pay far less per click than you can for the more specific terms.

There's also a price to be paid in terms of the clickthrough rate, which goes on to affect your Quality Score (Google's measure of the relevance of your advert, which affects the position that your advert appears in, given your bid).

Normally, you'd want to reduce the bids on keywords with low clickthrough rates, all other things being equal, as this would improve your Quality Score. But Preferred Bidding can't do this - it just tries to get your cost per click to your required level overall.

There are other dangers as well. If your campaign includes a bid on your brand name, the chances are that this will have a lower cost per click than the rest of your campaign. So what happens if you have an advertising campaign?

Suddenly, more people are searching for your brand name, driving down the overall cost per click. But not if you have Preferred Bidding - it'll try to keep your overall cost per click the same, and to do that, it'll increase your other bids, even if that means that you will suddenly be paying too much per click on these terms.

And does Preferred Bidding do anything useful? It's possible that your actual cost per click may vary over time, but this is not true in the majority of cases.

If you're running your campaign 24/7 with a fixed cost per click, the chances are that the majority of your competitors are as well. So it's unlikely that your actual cost per click is going to vary that much - certainly visiting your account once or twice per week to make a small adjustment is all that's required. A quick check of your conversion rates and actual cost per clicks shouldn't take that much time.

So, what about Budget Optimiser? Again, it's just interested in adjusting your cost per click - in this case, by changing your bids until you get as many clicks as possible. This will happen when your budget runs out just as the day ends more or less, but how does this benefit you?

If the objective of your website is to get as much traffic as possible, and you don't care what traffic it is, then it's ideal. But most websites have some kind of purpose - such as selling things, generating leads or creating an e-mail list. In these cases, a conversion has a value to you, and since not all clicks are equally likely to convert, you should be willing to pay more for the ones that do convert, and you want more of them. Budget Optimiser will favour the cheaper clicks, regardless of whether are worth much to you.

Google actually state that they "don't recommend the Budget Optimizer for advertisers focused on measuring conversions or values of ad clicks". But any campaign of the types that I listed should have conversion tracking, and even if they can't for technical reasons, they should still be thinking along those lines, rather than throwing their whole campaign into the hands of a machine.

Both of these tools are promoted as 'time-saving' but the potential costs of letting machines run your campaigns when they don't take into account your conversions - the whole reason that your campaign was created in the first place - could potentially be substantial. One hour, a couple of times a week, should be plenty...

Shane Quigley is the managing director of Epiphany Solutions .

Shane Quigley

Published 25 July, 2007 by Shane Quigley

Shane Quigley is Co-founder at Epiphany Solutions and a contributor to Econsultancy.

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