When I’m creating a new paid search campaign for a client things often grind to halt when I try to talk to them about maximum bids.

 Firstly for the uninitiated – a definition:

The maximum bid is the most you are willing to pay for a click from a given keyword.

So how do we go about calculating a maximum bid?

To be completely honest there are any number of ways. In an absolutely ideal world you’ll already have the following data – then calculating maximum bids is easy-peasy.

Average Spend

This figure might be the average spend per web transaction; or if customers tend to repeat purchase you might decide to use average annual spend, or even average lifetime value

% for Marketing

This figure is entirely up to you – what proportion of your customer’s spend are you willing to use on attracting them? Let’s imagine you run a site selling clothing. Your average customer spends £100. Now how much of this are you willing spend on getting the customer in? £5? £10? Make sure it’s a figure that you’re comfortable with.

Conversion Rate

To calculate your conversion rate divide the total number of visits to your site by the number of visits which result in a purchase.

Using this data you can calculate a maximum bid as follows:

‘Maximum Bid’ = ‘Average Spend’ x ‘% for Marketing’ x ‘Conversion Rate’

What if you don’t have any of this data?

For a brand spanking new site, of course you won’t have any of this data. I’d suggest in this instance to simply make some reasonable assumptions about the above figures. Once your campaign starts and you begin to get some real data you can always tweak your bids.

Image credit ansik

This entry was posted on Monday, March 30th, 2009 at 4:02 pm and is filed under PPC. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.