How To Bid On Google AdWords

Get the Flash Player to see this Google AdWords tutorial about building your keyword list.

Bidding with Google AdWords can be an account drainer if you don’t understand exactly how the system works.

Bidding is about strategy. This article explains the factors that can help you decide over one bidding strategy or another. This should be enough to have your campaign started, and see how it works in real life.

How Bidding Works with AdWords

In most PPC programs, the algorithm is simple. The higher you set your CTR, the higher you rank on the search results page.

Bidding with other PPCs Bid Ad position
Competitor 1 €2 First
Competitor 2 €1 Second

But Google AdWords works on a different basis.

Bidding with AdWords Max. Bid CTR Rank Ad position
Competitor 2 €1 10% 10 First
Competitor 1 €2 3% 6 Second

As you can see the rank on Google AdWords depends both on your maximum bid and your click through rate:

  • Rank=Max.Bid*CTR

That is how AdWords rewards you for writing relevant ads. AdWords also considers something called Quality Score to determine how much you pay, something we cover in more detail in our Advanced Techniques article “How To Build Landing Pages That Work“.

The other important aspect in bidding by Google’s rules, is that often you pay less than your maximum bid (max. CPC). The AdWords system automatically calculates the CPC you need to maintain the position of the competitor below you, and charges you only one cent more to display your ad first.

Bidding for Beginners

Beginners to AdWords should start off using automatic bidding – this allows you to set a daily budget for each of your campaigns and then AdWords works to bring you the most clicks possible within that budget. You can even set a CPC bid limit to make sure the system doesn’t bid more than you are willing to spend per keyword.

Manual Bidding

Manual bidding gives you the most control over your account, it allows you to set your own maximum CPC bids, either at ad group level or for your individual keywords.

When setting your CPC, consider the value of a click, how much is a visitor to your website worth and how likely is it that this visitor will turn into a customer?

If a click has a high value to you, then you might want to set a high bid. If it has a low value, lower the bid. You can get conversion statistics by setting up conversion tracking or by using Google Analytics.

Also, keep in mind that higher bids can increase click volume, but they can also result in more expensive clicks. Lower bids can decrease your volume but also get cheaper clicks. Consider this tradeoff between price and volume when you’re setting your bids.

At first, don’t bid the lowest CPC (that is €0.05), unless that’s all you need to get on first page. Usually, if you set your CPC a bit higher you can get feedback more quickly and understand how your ads perform. Try more ads for the same keywords.

When you get to know how the system works, you can make it work for you.

What Bidding Strategy to Use

In order to make up your mind over the strategy you should use, you have to analyse a few factors.

The competition: You can check how many competitors you have per each keyword by a simple search. The last ad displayed at the right of the results page is sure to pay €0.05 per click. If there is no ad displayed at the right, you can enter right on the first position with the minimum bid. See how your competitors write their ads. Check their landing pages. Read their copy. Try to guess their minimum buy and how conversion rate affects their ROI.

The ad quality: Quick test with higher starting bids. Testing the ads’ performance as quickly as possible is better, and sometimes you’ll have to start with a higher bid in order to see which way the market moves. After getting feedback, you can come up with a winning strategy.

The optimum position: Striking for the first position is not always the best strategy. If you want AdWords to show your ad on partner sites, it’s ok if your ad is third or fourth on the first page.

The budget you afford to spend on a daily basis: Think thoroughly how much you want to spend daily. Don’t bid what you can’t afford, but also don’t play too low because your ad will show up to only a fraction of the searches.

Monitoring the Competition

Once you’ve started an AdWords campaign, you need to keep a permanent eye both on the competition and your ads performances.

If you run only one campaign with just a few keywords it will help to take notice of what the bigger players do. You’ll see that some ads disappear in time and new ones come in, causing the hierarchy to change. Other ads just seem to stay in forever. This could be a sign that they perform well. You may also notice different ads promoting the same URL. All these changes are important to track because this is another way for you to learn what works and what doesn’t.

Remember, you can watch this and other AdWords Tutorials on our Youtube channel too.

Further Reading: We recommend reading How To Track Your Results next, or you can select one of our other tutorials below.

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