Tips to lower brand CPC for greater profitability

In the realm of digital marketing, brand ownership means everything. It’s safe to say that nearly all search advertisers see the vast majority of their traffic and revenue come from their branded initiatives.

Put simply, branded (search engine marketing) SEM is something advertisers need to fully own and focus on optimizing. With that being said, one of the biggest challenges within the brand space is optimizing spend as efficiently and effectively as possible, in relation to CPC (cost per click) levels.

Knowing that branded campaigns are so important for paid search, many advertisers opt to max out their keyword CPC bids. This means that the CPC headroom, or monetary gap between your max CPC bid and your keyword’s average CPC, will be much larger than needed.

In their minds, this ensures that they are capturing the maximum amount of traffic without sacrificing brand real estate. Although the theory behind that approach is technically accurate, these individuals are not being nearly as efficient with client spend. These campaign managers also allow Google and Bing’s algorithms a greater opportunity for charging extra money.

Typically, SEM advertisers fall into this trap for a good reason, because they want to ensure that they are eliminating competition on their client’s branded space.

But, we believe that minimizing the headroom between the max CPC bid and the average CPC over time will allow these advertisers to ultimately cut the spend levels without the sacrifice of user volume or traffic.

What we did to prove this theory

We ran a couple of tests to see how traffic was affected. Initially, we cut our bids in half, but we immediately saw traffic drop off as a result. Then we took a different approach and thought about what would happen if we tried shaving our bids down incrementally on a daily basis? This would allow us to keep a close eye on traffic and impression share, and bid back up if we ever fell below a certain volume threshold. Ultimately, we found that if you play this long-term dance with the search engine, the theory holds true. You can reduce your average CPC, maintain consistent traffic levels, and ultimately lower your keyword bids.

Implementation

Before launching a bid walk down test, it’s important to audit your account for potential risks and to estimate the expected impact. Here are several preliminary checks that we recommend:

1. Competitive landscape: Check the auction insights on your core keyword over the past year and note how many competitors are bidding in the auction as well as their average impression share. The higher the competition, the higher the risk, since advertisers will be able to overtake your position without bidding as aggressively. The higher competition also limits the opportunity to drive lower cost, since auction activity is a key component of Google’s quality score algorithm.
2. The headroom calculation: Another important check is looking at the past average CPC versus your current bid. The difference between your bid and the average CPC equals the headroom. Larger headroom means more opportunity for incremental efficiency. Because every advertiser lives in a unique digital environment, we don’t have a concrete headroom threshold that indicates an opportunity for cost savings. In general, we have run successful tests with advertisers who have a headroom ratio above eight. As an example, an advertiser with a two-dollar bid and a twenty cent average CPC is a qualified candidate. Our most successful case studies included advertisers with lower competition and a greater headroom spread.

Now for the exciting part. Let’s begin decreasing bids to reduce the average CPC. Keep in mind that this process may take several months, but the long-term benefits can help advertisers gain up to 40% cost savings, which can have a significant impact on profitability and frees up budget for acquiring new customers. Here are the steps:

1. Benchmark position & share metrics

Looking at the past 30 days, determine your average impression share and absolute top impressions share (as called as the new measure for the average position). For most advertisers, these metrics hover between 90-99%.

2. Launch engine bidding rules

Now that we have our benchmark share of voice metrics, we can launch two engine rules to help automate the bid walk down process. Google/Bing react poorly to major shifts, so we are going to set rules that only change our keyword bid incrementally up or down per day.

• The bid down rule – Create filters to isolate down to your core keyword and set a daily rule to decrease the max CPC if – average impression share > X, and absolute top impression share > X using yesterday’s data.
• The bid up rule – Stay at the core keyword level, but now set a rule to increase the max CPC if average impression share < X and absolute top impression share < X using yesterday’s data.

It is imperative to set both rules to run each morning. So long as your core term is maintaining adequate search impression volume, the bid down rule will make incremental adjustments daily. Once your impression share falls below your set threshold, the bid up rule will increase your bid every day until you have regained share. We set the impression share rules plus or minus a small percentage from their actuals so that the rules have more room to make changes. For a more conservative approach, set these rule thresholds to an exact percentage over the past 30 days.

Over time, you should expect to see your max CPC get closer to your average CPC, which will reduce overall cost without losing any volume. Advertisers with high auction pressure should check their core keyword daily (auction insights, impression share metrics, and live search results) to ensure that competitors are not outbidding your brand.

To conclude, as an advertiser, it is imperative to recognize the volatility of the search engine landscape. There are a lot of moving parts with branded real estate, some easy to control, and some not. This process will help you capitalize on greater opportunities without leaving anything up to chance.

Lowering brand CPC’s isn’t an overnight process by any means. But if you are willing to take a gradual approach towards efficiency, you will save your client significant money without the sacrifice of impression share on your keywords.

Steven Oleksak is Senior SEM Manager and Nicolas Ross is an SEM Coordinator at PMG Advertising Agency.