Leave Your Digital Comfort Zone by Rethinking PPC Optimization Formulas

By , guestblogger

This is a guest post by PPC Hero Ally Filipe Reis. Read more about his experiments with CPC formulas and campaign settings at his Kontagiouz blog.

Recently, we noticed that we were getting a bunch of campaigns stuck in the “comfort zone.” Volume levels were struggling and there was no way to put them on the rise. You know the feeling, right? Anyway, more volume was needed and something had to change. So we wandered what to do:

“Improving qualities scores?”, “Boosting CTRs?”, “Creating new ads”, “Improving conversion rates?”… So many possibilities, where should we begin?

After some nights of reflection and lots of caffeine, we end up developing a cleaver algorithm to optimize the keywords´ Max CPC.

In a lot of posts, we all saw the famous:

Max CPC = CPA target x Conversion Rate

Ok, this seems nice! One suggestion:

If you often use this formula, please split the keywords in different campaigns by Supporters and Converters. The Supporter campaign contains the keywords that don´t convert, but assist the conversions. The Converter campaign has the ones that are mainly last click converters.

Other way, you will lose a lot of volume due to the Max CPC´s decrease of the supporters’ keywords (they have terrible conversion rates comparing to converters).

So, looking up to a Converter campaign:

Should we use the last 7 dayslast 14 days or all time data? Using this aggregated data, can it mislead us or not?

At Kontagiouz, we explore Financial vertical in some European countries. Our operational level optimisations work fine taking into consideration data from the last 30 days.

Let’s check some conversion rates´ (keyword level) examples:

 Example 3 and 4 weeks ago CR (CR3) 2 weeks ago CR (CR2) Last 7 days CR (CR1) Last 30 days CR Last 14 days CR Keyword 1 30 % 15% 10 % 21.25 % 12.50% Keyword 2 15 % 25 % 30 % 21.25 % 27.50% Keyword 3 15 % 16 % 15 % 15.25 % 15.50 %

As you can see, keyword 1 is losing performance over the last weeks while keyword 2 is gaining performance.

If we only relied on the Last 30 days, we would end up considering the same value of CR for both keywords. Not good, they are quite different!

If instead we relied on the Last 14 days, we would be giving too much weight to the recent CR!

Ok, so we developed this concept of effective Conversion Rate:

eCR = 25% * CR3 + 35% * CR2 + 40% * CR1

being, CR3 the conversion rate of 3 and 4 weeks ago, CR2 the conversion rate 2 weeks ago and CR1 the conversion rate of the Last 7 days.

Check the eCR values:

 Example 3 and 4 weeks ago CR (CR3) 2 weeks ago CR (CR2) Last 7 days CR (CR1) eCR Last 30 days CR Last 14 days CR Keyword 1 30 % 15% 10 % 16.75 % 21.25 % 12.50% Keyword 2 15 % 25 % 30 % 24.50 % 21.25 % 27.50% Keyword 3 15 % 16 % 15 % 15.35 % 15.25 % 15.50 %

We believe that the eCR adapts better to the evolution of keyword´s performance.

Note: The keyword must have 3 or more conversions in each period.

Very well, we have an eCR that will help us achieve the desirable CPA target, but what can we do to maximize the volume?

When we use the formula, Max CPC = Target CPA x Conversion Rate,

The value obtained for Max CPC is the value that our Average CPC can achieve for the CPA target. In fact, we always check a deviation between the Max CPC and Average CPC that is bigger with low competition´s keywords and smaller in high competition cases.

It would be awesome if the Average CPC could hit Max CPC´s value on average, so we could also maximize the volume within our CPA target.

To solve this challenge, we created a Bid Adjustment (BA) that is calculated through the ratio between the Max CPC and the Average CPC since the day after the last bid adjustment (if the bid was changed more than 7 days ago, it would be preferable to use the ratio of the last 7 days).

Note: To use the BA is necessary the keyword have more than 3 clicks in the analysis´ period.

This BA will make us increase the Max CPC so our Average CPC achieves the value we would have as Max CPC before the adjustment.

Finally, presenting our algorithm:

Max CPC = CPA target x (CR3 x 25% + CR2 * 35% + CR1 x 40%) x BA

Here goes what we got. The implementation ran from November 2013 until January 2014. During this period we didn´t made any other optimization than the Max CPC adjust at keywords level.

This campaign was created at 2012, it was very stable, making an average 679 conversions/month at a 1.57€ of CPA before the implementation of the algorithm.

November 2013 brought the change of the Destination URLs of the ads due to internal reorganisations, that’s why we had a decrease in volume.

Let´s check the values:

Conclusions

In January 2014, the search campaign reached similar conversion volume as October 2013, but with -37% of the costs. We also felt a good control over the CPA.

The downside is that the algorithm only takes into consideration 2 factors.

Anyway, the most important thing we try to share is to not get stuck with a fixed period of time: last 14 days, last 30 days, all time or whatever. Try different time windows to get the best adjustment of the CR trend (suggestion: use as base 7 days period, because this way you are covering all days of the week).

Regarding the BA, we are using this adjustment more and more often. If you want to increase your volume, give it a try!

8 thoughts on “Leave Your Digital Comfort Zone by Rethinking PPC Optimization Formulas”

1. Filipe Reis

Hi Leo,

Well, I respect if you found the analysis “stupid”, anyway about its effectiveness, I don´t know about your optimizations, but for us cutting the costs by 37% and maintaining the conversions’ volume is quite interesting, mainly in a campaign that was stuck.

Do you want to share why you think that way? It’s always a pleasure to share PPC’s best practices.

Thanks,

1. Liliane Nogueira

Hi there.

Well, it’s sad to see something like this posted here.

It disregards several key factors in SEM like match type, CR. vs av. position, search terms associated to each keyword, etc..
Basicaly it is just a made up formula for “optimizing” cpc’s.
And the results are just inconclusive, there are several other factors that could have helped the campaign to recover from that rough period.

Besides, we both know that performance is about 1/4 of the account potential…

Keep trying!

Cheers,

1. Filipe Reis

Hi Liliane,

Long time no see.

“The downside is that the algorithm only takes into consideration 2 factors.”

We know that there are several external factors that can influence the results, anyway what we pretend to share is:

“Anyway, the most important thing we try to share is to not get stuck
with a fixed period of time: last 14 days, last 30 days, all time or
CR trend (suggestion: use as base 7 days period, because this way you
are covering all days of the week).”

We also consider interesting the BA.

Give it a try and share the results!

Thanks,

1. Ross

I disagree with the fact that this approach doesn’t consider other factors. Of course there are differences in match types and traffic quality and quality scores and ad position. But you would apply this formula on an individual keyword level not a group of keywords – this way match types becomes irrelevant. Yes, keyword cleaning may have occurred so the traffic quality could be better, yes quality score may have reduced and lowered position but the formula above weights the conversion rate to take into account those changes. This is a great approach to try something a little different on your accounts. Using this regularly, as in weekly, should yield some strong results in my opinion as the weighting does take into account other changes that previously wouldn’t have been considered. I think it’s a case of trial and error with the weighting percentages we use and possibly there isn’t a one size fits all solution but I think it’s a great starting point.

2. sandy

I find this analysis pretty interesting. though it does not consider other factors, but still the end results looks very promising especially a reduction in CPA (Which is a major challenge for us these day, we have already done other possible optimizations like match type, avg. position, bid adjustments and still struggling to bring down the CPA to a desired level without compromising on the volumes.)

I will try this formula for some of the top keywords. By the way, when you say 3 and 4 weeks for CR1, do you suggest to take avg. of 3rd and 4th week CR? Also do you keep changing BA in this formula until you get to your desired max CPC and how often you change it after your first implementation of bids using the formula?

1. Filipe Reis

Hi Sandy,

It’s true. There are many factors such as CTR, average position, etc, that influence the keywords’ performance. I think we should use this approach as a complement. Anyway the results we exposed on this post were only from these formulas’ optimization.

So,

CR1 is the keyword’s CR of the Last 7 days | CR2 is from 8 to 14 days ago | CR3 is from 15 to 28 days ago

We make the optimization every 7 days.

To calculate the BA (Max CPC / Avr CPC), the

Max CPC’s value is the bid the keyword had during the last 7 days

Avr CPC’s value is the keyword’s average CPC for the last 6 days (so we don’t include the day the keyword had the effect of 2 different bids)

If my explanation was not conclusive, pelase say Sandy. Share the results after! 🙂

Best,