There has been much chatter in the SEM blogosphere about the new Adwords feature called “preferred cost bidding,” but no one has actually put it to the test to see how well it works. (Here is a post on that inquires about preferred cost bidding.) Just in case you haven’t heard, preferred cost bidding allows you to enter the price you would prefer to pay per click, not the maximum amount you’re willing to pay.

So, as a test I paused two of my existing ad groups and I copied them into new campaigns. I didn’t want to loose my current bid settings because they are performing well enough right now (but they could always do better!). Keep in mind, preferred cost bidding can only be set up at the campaign level.

Within ad group #1 I set my preferred cost per click to $0.10 (before it was set to $0.12). I checked the status the next day and the cost-per-click (CPC) actually jumped up to $0.17. The following day my cost per click lowered to $0.10 and remains so a week after the initial changes were made.

Within ad group #2 I set the preferred cost per click at $0.12 (that was my original max bid). My CPC stayed at $0.12 for a few days with no fluctuations. Today it’s at $0.09. Fantastic!

So far preferred cost bidding performs about the same as your normal pay-per-click setup. I did however notice that my average position went down along with my cost-per-click. My impressions, clicks and click through rate all managed to stay about the same.

I recommend trying it out for your self. Set up a preferred cost per click that is lower than your current maximum bid to see if you can decrease your click costs.

I will follow up with more of my results next week.