What You Will Learn
In this lesson 57, we will pick up on our discussion from Lesson 56 where we had begun to discuss the testing and evaluation of your keywords for use in PPC Search Marketing. If you have not read Lesson 56, you should do so before reading this lesson.
Steps In Developing Your Keyword Strategy
Recall that the steps in developing your keyword strategy are:
1) generating and expanding your keyword list, and
2) testing your keywords.
Testing each keyword has two sub steps:
1) determine the best position for the keyword, and
2) determine whether to bid the keyword.
We discussed generating and expanding your keyword list in the last lesson. We pick up here with testing your keywords, the first step of which is to determine the best position for the keyword.
Determine The Best Position For Each Keyword
To determine the best position for a keyword, you start by ascertaining, as best you can, the lowest bid for the keyword for each possible position. Bidding and traffic estimation tools provided within the search marketing dashboards are a good place to start. While not always accurate, it is the best information you have until you collect some data on your own.
It is important to collect your own data in the safest way possible. Collect your data safely and analyze it with your Keyword Strategy before committing to a full fledged advertising campaign. Use the budgeting tools in the search marketing programs to place daily limits on your spending while you are gathering your initial data. Spend just enough to generate the impressions needed to determine the current value for your keywords in various positions in the results.
You need to create a table to keep up with your findings. Assign a separate row in your table for each keyword at each position. That is, you should have a row for keyword1 at position 1, a row for keyword1 at position 2, a row for keyword1 at position 3, and so forth for up to the number of possible positions that you want to analyze (usually six or seven positions, if there are that many positions for that keyword on the particular search engine you are using). Then, you also need a row for keyword2 at position 1, a row for keyword2 at position 2, a row for keyword2 at position 3, and so forth up to the number of positions you want to analyze. Do this for each keyword that you have generated.
For each keyword at each position, you record the lowest bid to obtain that position. Here is an example of what this might look like:
Keyword1, Position 1, $.87
Keyword1, Position 2, $.64
Keyword1, Position 3, $.43
Keyword1, Position 4, $.41
Keyword1, Position 5, $.33
Keyword1, Position 6, $.14
Keyword1, Position 7, $.11
Keyword2, Position 1, $.94
Keyword2, Position 2, $.86
Keyword2, Position 3, $.75
Keyword2, Position 4, $.63
Keyword2, Position 5, $.40
Keyword2, Position 6, $.17
Keyword2, Position 7, $.12
(Our apologies to international readers who use other currencies. We are using U.S. dollars here, as we have throughout this course, as a default. The principles are, of course, the same with other currencies.)
The third item above for each row in our table is called the cost per click (CPC). Beyond that, for each row, we also need to estimate the conversion rate (CR) and the conversion cost (CC) . The conversion rate (CR) will be column 4 when we expand our table above. Column 5 will be the conversion cost (CC), which we can calculate from the cost per click (CPC) and the conversion rate (CR).
If you take the cost per click (CPC) and divide it by the conversion rate (CR), the result is the conversion cost (CC). For example, if your CPC is $.87 and your CR is 1/200 it looks like this:
(First we convert 1/200 to .005)
.87 / .005 = 174
This is the same as simply saying “multiply your CPC by the number of clicks needed to get a conversion”, which looks like this:
.87 x 200 = 174
Both of these are just different ways of expressing the math that leads to the conclusion that it will cost you $174 on average for each conversion when your cost per click (CPC) is $.87 and your conversion rate (CR) is 1/200.
Thus, we can expand our table above to have the following headings:
Keyword

Position

CPC

CR

CC

The next column we need to add to our table is the click through rate (CTR). The reason why will be explained below. Thus, our table headings now become:
Keyword

Position

CPC

CR

CC

CTR

There is one other piece of information we need to complete our table. Recall from previous lessons the emphasis on your need to determine the value to you of your conversions. That is, when someone clicks on your ad, goes to your site and buys a product or joins your program, you need to know as precisely as possible what that is worth to you. For each Search Marketing Campaign you start, the first step is to evaluate the conversion. Thus, you should already have a conversion value (CV) to plug into the table.
So, let’s add the conversion value (CV) to our table also:
Keyword

Position

CPC

CR

CC

CTR

CV

Now, let’s look at a formula that provides a profitability factor for each keyword/position combination. We will call this measure of profitability “P”.
You determine the value of P for each keyword/position combination (i.e., each row of your table) as follows:
P = (CV – CC) x CTR x CR
Stated in words, you determine the profitability for each keyword/position combination by subtracting the conversion cost (CC) from the conversion value (CV) and then multiplying the difference by the click through ratio (CTR) and multiplying again by the conversion rate (CR).
We are adding the click through rate (CTR) into the mix to factor in whether the ad will generate any significant results. If an ad is not going to be clicked on very much, it has a low profitability, regardless of how the other numbers work out. If an ad is going to be clicked on frequently, it has a higher profitability potential.
Again, what the formula does is to subtract the conversion cost (CC) from the conversion value (CV) and then multiply that by the click through rate (CTR) and then multiply again by the conversion rate (CR). Let’s look at an example, taking the first row in our first example table above:
Keyword1, Position 1, $.87
Let’s say we have a click through rate (CTR) of 10% or .10.
Let’s say the value of our conversion value (CV) for this campaign is $150.00. Let’s stick with our default conversion rate (CR) of 1/200 or .005.
From the CPC and the CR, we can calculate the CC. Here, .87 x 200 = 174.
Thus, our expanded row, with column headings added and these values added, would look like this:
KEYWORD

POSITION

CPC

CR

CC

CTR

CV

Keyword1

1

.87

.005

174

.10

150

Applying our formula, P would equal (150  174) x .10 x .005, which calculates to .012.
Since the first example turned out to be a negative figure, let’s take one more example. Let’s take the fourth row from our second table above and say that the CTR is five percent and the CV is still $150.00. We will keep the CR at 1/200 or .005. To calculate the conversion cost (CC), we divide the CPC by the CR. This calculates as .63 divided by 1/200 or .63 x 200, which equals 126.
KEYWORD

POSITION

CPC

CR

CC

CTR

CV

Keyword2

4

.63

.005

126

.05

150

Applying our formula to this data would equal (150  126) x .05 x .005, which calculates to .006 as the value of P for this keyword/position combination.
One interpretation of this calculation is that we can expect, on average, to make a profit of $.006 every time the ad for this keyword appears in position 4 on the search engine results. This give us a figure that we can compare to other keyword/position combinations in order to determine which position is best for which keyword. In this way, we can use the value of P as calculated with this formula to compare positions for a particular keyword.
Let’s work out all seven positions for Keyword1 above, adding a column to input our value for P in the table.
KEYWORD

POSITION

CPC

CR

CC

CTR

CV

P

Keyword1

1

.87

.005

174

.10

150
 
Keyword1

2

.64

.005

128

.07

150
 
Keyword1

3

.43

.005

86

.06

150
 
Keyword1

4

.41

.005

82

.04

150
 
Keyword1

5

.33

.005

66

.02

150
 
Keyword1

6

.14

.005

28

.01

150
 
Keyword1

7

.11

.005

22

.01

150

Recall that we calculate the value of the conversion cost (CC) by dividing the CPC by the CR (or multiplying the CPC by the inverse of the CR).
Now let’s calculate the value of P for each row of the table and insert those values in the table.
The formula again is P = (CV – CC) x CTR x CR. Using this formula, I have calculated the following values for P for each row. Since my math is not always so great, see if you can check behind me.
KEYWORD

POSITION

CPC

CR

CC

CTR

CV

P

Keyword1

1

.87

.005

174

.10

150

.012

Keyword1

2

.64

.005

128

.07

150

.0077

Keyword1

3

.43

.005

86

.06

150

.0192

Keyword1

4

.41

.005

82

.04

150

.0136

Keyword1

5

.33

.005

66

.02

150

.0084

Keyword1

6

.14

.005

28

.01

150

.0061

Keyword1

7

.11

.005

22

.01

150

.0064

Now, with these calculations, we are able to determine the best position for Keyword1 simply by finding the highest value for P in the table. Looking at the table we see that position 3 has the highest value for P, .0192. Second place goes to position 4 with a value for P of .0136. Note that position 1 has a negative value for P. That confirms what we already knew from comparing the conversion cost (CC) with the conversion value (CV) for position 1 – that a conversion cost more than it was worth and thus Keyword1 in position 1 should be avoided. It loses money.
But, the important information we now have about Keyword1 is that it’s best performance is in position 3. Thus, if we bid keyword1, we should only bid for position 3. Also, in the culling and refining our keyword list, we need only remember that the value of P for Keyword1 in its best position is .0192. This gives us a measure of the value of Keyword1 that can be compared to the other keywords in our list.
Conclusion
To determine the best position for a given keyword, you first collect data for the cost per click (CPC) and the conversion rate (CR). From these you can calculate the conversion cost (CC). Then you collect data for the click through rate (CTR). Your conversion value (CV) should have been determined at the start of the campaign. You can then place all of these values in a table and determine the profitability (P) for each possible position for the keyword. The position with the highest P value is the best position for that keyword.
You can also use the P value for the best position of a keyword to compare that keyword against other keywords on your list.
What's Coming Next
In our next lesson we will continue with our discussion of Keyword Strategy, addressing how to chose which keywords to bid on and discussing the necessity to continuously check and update the data we use in our analysis.
Author Bio
Article by George Little.
For more information on the Internet Income Course and other works and courses by George Little, see www.profitpropulsion.com.
For Web Hosting services specially designed for SFI affiliates, see www.profitpropulsion.com.
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