Seriously, if you are using the ‘sweet-spot’ approach to decide what position your advert should appear in, the amount that everyone else is bidding makes no difference to whether your campaign makes money. It does, however, affect how much money you can make. Not convinced? Look at the following example. Take the following two search terms. The profit from a sale, and the total traffic is the same on both. So are the clickthrough rates in different positions and the conversion rate. The only thing that’s different is the cost per click of appearing in each position.
| Position | Cost/Click | Clickthru Rate | Conv. Rate | Impressions | Clicks | Conversions | Profit |
|---|---|---|---|---|---|---|---|
| 1 | £1.00 | 15% | 6% | 1500 | 225 | 14 | £45.00 |
| 2 | £0.90 | 12% | 5% | 1200 | 144 | 7 | £14.40 |
| 3 | £0.80 | 10% | 5% | 1000 | 100 | 5 | £20.00 |
| 4 | £0.70 | 9% | 5% | 900 | 81 | 4 | £24.30 |
| 5 | £0.60 | 8% | 5% | 800 | 64 | 3 | £25.60 |
| 6 | £0.55 | 7% | 5% | 700 | 49 | 2 | £22.05 |
| 7 | £0.50 | 6% | 5% | 600 | 36 | 2 | £18.00 |
| 8 | £0.45 | 5% | 5% | 500 | 25 | 1 | £13.75 |
| 9 | £0.40 | 4% | 5% | 400 | 16 | 1 | £9.60 |
| 10 | £0.35 | 3% | 5% | 300 | 9 | 0 | £5.85 |
| Position | Cost/Click | Clickthru Rate | Conv. Rate | Impressions | Clicks | Conversions | Profit |
|---|---|---|---|---|---|---|---|
| 1 | £2.00 | 15% | 6% | 1500 | 225 | 14 | -£225 |
| 2 | £1.80 | 12% | 5% | 1200 | 144 | 7 | -£115 |
| 3 | £1.60 | 10% | 5% | 1000 | 100 | 5 | -£60 |
| 4 | £1.40 | 9% | 5% | 900 | 81 | 4 | -£32 |
| 5 | £1.20 | 8% | 5% | 800 | 64 | 3 | -£13 |
| 6 | £1.00 | 7% | 5% | 700 | 49 | 2 | £0 |
| 7 | £0.80 | 6% | 5% | 600 | 36 | 2 | £7 |
| 8 | £0.60 | 5% | 5% | 500 | 25 | 1 | £10 |
| 9 | £0.50 | 4% | 5% | 400 | 16 | 1 | £8 |
| 10 | £0.40 | 3% | 5% | 300 | 9 | 0 | £5 |
In the first case, the sweet spot is in fifth place (profit = £26), and in the second case, it’s eighth (profit = £10). But in both cases, the Cost Per Click is the same. This is because the optimal cost per click has nothing whatsoever to do with the number of clicks or conversions that you get – it’s purely dependent on the conversion rate, cost per click and the profit (exc. the ad cost) you make on a sale. And these things are totally independent of where your advert appears in the search results. It’s not that surprising really, if you think about it. If your cost per conversion is lower that your profit per conversion, you make money – otherwise you don’t. And cost per conversion can be expressed as cpc/conversion rate. Since the conversion rate is (usually) unaffected by result position, then a cpc will be profitable or not irrespective of your position in the results. One interesting implication of this is that it answers the question – “what should I do if somebody jumps above me in the search results?”. The answer is of course (!) that you should do nothing, and accept the reduced profit (my blog on the numpties makes a lot of sense, doesn’t it!). In summary, ignore what everyone else is doing – work out the right bid for you, and stick to it.
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