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Optimize e-commerce bidding with the "Value Per Click" metric

Published: November 27, 2012

Author: Molly Shotwell

Today’s post is by Shawn Livengood, Online Marketing Manager for BuildASign.com.
online commercePPC keyword bidding is pretty complicated stuff these days, especially if you have an e-commerce account that needs to stay profitable. If you’re not satisfied with manually adjusting your bids, you can always use Google Enhanced CPC or Conversion Optimizer. Maybe you have some money to burn and want a third-party solution like Marin Software or Kenshoo.
These solutions are all right, but in my experience I’ve found that your best results come when you’re running your own show. Google optimizes bids for making money for Google, not you. And third-party software works well in theory, but the additional cost for the software would probably be better spent on expanding your PPC budgets. So what’s a small-time e-commerce advertiser to do?
The best method for e-commerce PPC bidding I’ve found is the value-per-click method. With this method, you take the total value delivered by a keyword (that is, the total profit you’re making on a keyword before you subtract ad spend from your profits) and divide it by the number of clicks for that keyword. Then, you can compare this value-per-click (VPC) number to your average CPC for that keyword and see how optimal your current bid is.
Here’s an example. Let’s say you do your bid adjustments every 7 days, and this is your latest keyword report (for the sake of this example, we’ll say that “Total Conversion Value” is Profit):
bidding data
You can get a pretty decent idea of which keywords are making and losing money just by subtracting the total cost from the total conversion value.  But this doesn’t help you get much insight into how you should change your bids. To get that, we’ll need to add a “Value Per Click” column that divides the total conversion value (Column L) by the total clicks (Column D):
value per click metric
Now we can see exactly how much value each click is delivering, and how much this differs from the average CPC (compare columns M and F). In this example, [buy widgets] and [widgets] are losing money on the average click, while [order widgets]and [cheap widgets] are making money on the average click. Now, let’s use some more formulas to figure out how we should adjust our bids.
In this next example, I removed all non-bid-related metrics for clarity, and added a column. This column is “VPC-CPC”, which is the VPC (Column M) minus the average CPC (Column F).
data for bid adjustment
If your VPC-CPC is negative, you need to adjust your bid down. A good start would be to subtract VPC-CPC from your Max CPC bid. This won’t give you the exact bid you need to be at due to the spread between Max CPC and Average CPC, but it will get you closer to where you should be. A larger loss will mean a larger bid decrease, and keywords on the cusp of profitability will get a more subtle adjustment.
You can also use the VPC calculation to increase bids on keywords that could make more money. In the above example, [order widgets] and [cheap widgets] had a healthy VPC, but were showing on the middle of the first page results. If you increased the bids, you might increase traffic and conversions while remaining profitable. Looking at the VPC calculation can give you an indication of how much you can increase the bid.
This system is by no means infallible, but it does offer valuable insight into profitability at the keyword level. Looking at traffic, conversion, or CPAs alone is too limiting. If you want to make money on PPC, you absolutely must look at the revenue and profit driven by each keyword. And with this simple calculation, you could be on your way to more profitable keywords after only a few regularly scheduled bid adjustments.
PPC without Pity– Shawn Livengood is the Online Marketing Manager for BuildASign.com, a website specializing in custom signs, banners, and other custom printed products.  Read more about paid search strategy at his blog, PPC Without Pity.

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