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Posted on May 15, 2008

PPC Budget Squeeze

chris
PPC Budget Squeeze
chris
Posted on May 15, 2008

While Google sets no minimum daily budget for advertisers, sometimes the market sets an implicit daily budget.

A company finds itself in a PPC Budget Squeeze when the market bids for its ad space exceed the advertiser’s daily budget. Some ad spaces are simply more competitive than others, and some advertisers’ budgets are set to target merely a fraction of relevant searches for their geographic market. When both conditions exist, then the advertiser risks being caught in a PPC Budget Squeeze.

PPC Budget Squeeze example:

A house cleaning company located in Orange County, CA wishes to spend $300 per month on Adwords, implying a daily budget of $10 per day. The client has set its budget at this level despite the fact that the potential daily ad spend for the market is $100, and its own break even CPC is $16.55. Due to the budget constraint, the Ad Manager has set a targeted position range of 4.5 to 8.5 (page one, below the fold). The market price for the range averages $9.50, with some search phrases costing as much as $13 and others as low as $8.25.

Since it’s impossible for any bid to exceed the daily budget, all search phrases exceeding the implied daily budget amount of $10 will fall outside the advertiser’s targeted position range. This is an example of a PPC Budget Squeeze. The Ad Manager will identify the PPC Budget Squeeze condition when she notices that bidding the budget of $10 is not sufficient to win an ad spot within the targeted position range. For example, a search phrase, like “Orange County House Cleaning,” with a bid of $10, results in a position of 12.2 (above the fold – second page), well worse than the targeted max position of 8.5.

Warning Bells

Warning bells ring when dealing with any account affected by a PPC Budget Squeeze. Quite often the condition represents a symptom of a larger problem, and sometimes implies that an advertiser may be in over its head, not just in Adwords, but possibly also in other areas of its business, such as operations, or finance. While we’ve used a house cleaning company in the above example, the PPC Budget Squeeze condition just as often affects advertisers in other competitive markets, like tax attorneys, personal injury attorneys, dentists, and cosmetic surgeons. Such ad spaces are relatively competitive, with bids exceeding $25 CPC. An Ad Manager may ask, “Why is it that an advertiser is budgeting only enough to purchase one click per day or less?” There are several potential causes of a PPC Budget Squeeze:

  1. the advertiser doesn’t understand the economic potential of PPC advertising;
  2. the advertiser is financially stressed;
  3. the advertiser is a bottom feeder in its ad space;
  4. ad space cowboys have caused the ad space to become hypercompetitive.

PPC Budget Squeeze — Remedies

An Ad Managers’ objective is to maximize an advertiser’s return on ad spending, and this objective applies despite a condition of PPC Budget Squeeze. So the first thing a PPC Ad Manager does in seeking a remedy is to ensure there exists a healthy buffer between the break even CPC and the targeted CPC (the constrained market CPC, and the estimated CPC bid required to display an ad within the targeted position range). Once this has been confirmed, then there are several remedies for a PPC Budget Squeeze:

  1. most often, when a PPC advertiser is experiencing a PPC Budget Squeeze, the advertiser’s account is in the Bargain Hunting mode. If this is the case, depending on the conversion and bounce rates for the affected keyword phrases and the number of phrases affected, it may make most sense simply to pause the phrases;
  2. assuming the client has a healthy buffer between it’s break even CPC and it’s budget (the CPC constraint), then a PPC Ad Manager might consider proposing an increase of the monthly budget;
  3. depending on the click pattern of the ad space and price positioning of the advertiser’s products or services, it may make sense for the advertiser to settle for worse ad positions. In our example, the house cleaning company could revise its targeted ad positions to the top of page two and alleviate the PPC Budget Squeeze condition. While we would generally not recommend such an approach for most house cleaning advertisers, it can sometimes make sense for some geo markets and for some ad spaces, particularly when the advertiser is positioning its product or services as being most the affordable (a low cost service or product provider). When searchers are clicking on multiple ads, in order to identify the most affordable option, and the advertiser with a limited advertising budget is offering the most affordable option, then a page two ad position can often make sense;
  4. when the first three remedies don’t apply, then the Ad Manager might consider restricting the run times for the account to fewer than seven days per week. Using our house cleaning client as an example, running the ads only 4 days per week instead of 7 would result in an implied daily budget of $17.50 per day, instead of $10 per day. The higher daily budget amount would alleviate the constraint and allow the Ad Manager to increase bids to an extent in order to achieve the targeted ad positions.