Paid search programs (beyond just PPC, Pay Per Click)  allow for great mediums to penetrate the market quickly and efficiently, but in order to be truly effective each campaign requires a bit of planning beforehand. To fully understand what makes a paid search campaign truly effective you must understand the various values and factors that drive demand, incentive, effectiveness, and the philosophy behind paid search.

The Philosophy of Paid Search: A simple exercise. A website owner has created a business, it scales its revenue with an increase in traffic, based on their own conversion rates it makes sense to purchase traffic, the most traffic is generated from being placed #1 on PPC, they compete with a number of competitors for the #1 position, prices increase with an increase in demand for the top spot, eventually the price will max out when the player with the highest value attained from a PPC  conversion = the increase in value achieved from a web conversion. To illustrate this another way, the price for the top spot on PPC will continue to increase until the bidder who gains the most from receiving that visitor no longer sees profit from paying anything additional for that visitor. This is basic the microeconomic theory of supply and demand, and because this is such a dynamic and new market, economic elasticity is still being determined.

How to Compete: Now that we have established what equates to the general driving force behind PPC, we can look at what options are available to those who can’t compete with the #1 spot. When we look at the overall traffic generated for the top positions, the #2 spot receives approximately 60% of the traffic when compared to #1, #10 receives about 10%. Clearly it is advantageous to be closer to the top if your end goal is driving more traffic. Now, what you are probably thinking is, that’s fine and good, but what do the conversion rates look like across the board for the various positions? That is the right question to be asking, and fortunately there are some insights to help answer this question. According to Atlas Solutions, conversion rates of lower positioned ads can equate to higher, if not equal, conversion rates when compared to their higher ranked competitors, but this varies by the overall keyword demand. Although the conversion rates might be similar the overall traffic you will achieve will be limited in scope.

Get a Larger Catchers Mitt: If you are looking to drive considerable traffic but cannot afford to compete with highly popular keywords, you must broaden the spectrum of keywords you include within your paid search campaigns. Focusing on the less popular, less competitive keywords can help to drive more traffic still related to your site. Atlas Solutions has also done a study comparing the top keyword conversions as compared to the lower demand keywords and found that conversion rates within the lower divide can also be as good or better in terms of overall conversions. This is good news for search marketers on a more limited budget. It may require additional time and resources when identifying additional keywords to target, but the long-term strategy here will, drive traffic, maintain conversions, and save money.

How Much to Bid: There is no universal handbook that says, for this keyword bid this amount. Bidding is a completely subjective philosophy as profit margins and motivations are different for every site. Depending on how your conversions and profit margins are performing, this will directly affect what pricing makes sense on your paid search programs. You may find that no matter how high you seem to be bidding, there is always someone above you in the paid search results. This may be for any number of reasons.

• The competition could be overpaying and not realizing it, in which case economics will catch up to them in the end.

• The competition could have a lower cost basis with higher profit margins based on conversions, in which case you have quite a hurdle in front of you.

• The competition could have a higher clickthrough rate generating more revenue based on advertising or branding platforms.

• The competition could have a higher conversion rate. You may find that as efficient as your site is, there are structures and designs that are more efficient at capturing conversions. Keep a close eye on your competition to make sure you are not missing any methodologies that may help you.

To truly optimize your paid marketing campaigns the efficiencies of your overall site design and conversion process need to be buttoned up and efficient. There is a lot of competition and more appears every day. The key to success is knowing your conversion rates. Know the conversions for each campaign you are running, the products or accounts you are selling, and the net profit margins that can be expected. By monitoring this information closely, you will be running a much more efficient and adaptable paid search campaign.