Manually Optimizing Bidding in Paid Search: Estimating a New CPC

If you aren’t using an automated bidding technology or Google’s bidding strategies and like to have full control of your bidding, how do you manage bidding in bulk to drive efficiencies at scale? This blog post will provide you a basic formula you can use when bulk editing paid search bids.

Before you begin, you need enough front end and back end performance data collected to make good decisions; you need to make sure your data is statistically significant enough to base decisions on. Ideally you should shoot for a minimum of about 100 clicks per keyword.

Before estimating your new keywords, you need to keep two things in mind:

  1. Cost per Clicks are the product of your CPA and your CVR. So if you set a target CPA and you know your current Conversion Rate, you can calculate your new CPCs.
  2. Although you can calculate your ideal CPC, you must remember that number is an Average CPC; you will need to figure out what Max CPC to set in order to end up with your target CPC.

With these in mind, here are 7 steps to manual keyword bidding in paid search.

Step 1: Download a Keyword Performance Report. Select a date range long enough to give you significant data. Keep in mind that if you’ve made some drastic changes recently, your recent performance data may not be helpful in projecting future performance.

  • In order to be able to calculate your new bids, you’ll need to include the following performance metrics: Clicks, Max CPC, Avg CPC, Conversion Rate.
  • I also like to include other metrics to get a better sense of the keywords’ performance: Impressions, Cost, Conversions, Avg. Position, and CPA.

Step 2: Based on your current performance, target a CPA goal you’d like your bids to support.

  • Use your performance data as well as the relative importance of that keyword to make this decision. For example, think about a campaign that’s currently hitting a $10 CPA and you think you can achieve a lower CPA. That would mean lowering your bids, which will lower your average position and ideally get you cheaper clicks. On the other hand, if you have some conversions that are so valuable that they are worth higher CPAs, you can raise their bids to increase the amount of conversions you can expect those keywords to drive. If you need more insight on this process, see our previous post on setting budgets and CPCs.

Step 3: Based on your target CPA, calculate your new desired CPCs and add them as a new column. The calculation for this new bid is:

Which breaks down to mean:
Cost/Clicks = Cost/Conversions × Conversions/Clicks

Step 4: Since you’ve calculated your desired Average CPCs, you now need to calculate the Max CPC you must set. Do so by dividing your current Max CPC by your current CPC to understand the percentage difference between them. Multiply your desired Avg. CPC by that number to arrive at the Max CPC you should set.

Step 5: Copy the formula down the entire keyword report to calculate all your new CPCs. Some will be higher and some will be lower than your current average CPC; they will be priced to maximize your return and drive efficiency.

Step 6: Spot check. You’ll find that this process may end up leaving with some wonky CPCs. For example, it could be that a given keyword may have had unusual performance during the date range you’ve selected, so calculations based on their performance will be out of line with the rest. So keep your eyes open for new bids that are unusually high or low. Also, if you have some keywords that are already in top position, there’s no benefit in raising their bids; grey them out and don’t modify them. Finally, there may be some keywords you don’t want to modify; you may want to keep bids up on some keywords for awareness or some other strategic goal.

Your sheet will end up looking something like this:

Step 7: Submit your new keyword bids to the search engines.

Enjoy your efficiencies!

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