Last month Google launched a new feature of AdWords called Bid Simulator. Bid Simulator takes a few of the guess work out of cost per click (CPC) bidding by estimating the number of clicks or impressions you could have received if you had used a different maximum CPC bid. Today, I thought I would take the chance to help you make the most of this new feature by explaining how to use the data from Bid Simulator to maximize the profit from your marketing investment.
In general, when you increase your maximum CPC bid for keywords on search you are able to create 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 costly auctions. The ambition 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 want 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 value to you, on average. Your incremental cost per click is how much extra you are paying, on average, for the additional clicks you are getting from your higher bid. When your value per click is higher than your incremental cost per click it creates sense to increase your bid. On the other hand, if your value per click is lesser than your incremental cost per click, you probably want to decrease your bid.
