Google Adwords Bidding Tutorial

Google’s Chief Economist Hal Varian has created a video tutorial to show marketers how to use data from Google’s recently launched Adwords Bid Simulator to help advertisers maximize profits earned from their marketing investment.

On the Official Google Blog, Varian summarizes Google’s advertising auction process:

In general, when you increase your maximum CPC bid for keywords on search you are able to generate more clicks to your site. This may be because your new bid qualifies you to appear higher up in the Sponsored Links on the search results page, or because your higher bid qualifies your ad to appear in new, more expensive auctions. The goal for you as an advertiser is to decide whether or not these additional clicks come at a cost that is still profitable for you.

To make this decision, you need to compare your expected value per click to your incremental cost per click. Your value per click is how much a click for a particular keyword is worth to you, on average. Your incremental cost per click is how much extra you are paying, on average, for the extra clicks you are getting from your higher bid. When your value per click is higher than your incremental cost per click it makes sense to increase your bid. On the other hand, if your value per click is lower than your incremental cost per click, you probably want to decrease your bid.

Watch Varian’s video to understand how to estimate how keyword bids impact both an Adwords campaigns value per click and incremental cost per click.

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