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AdWords: Setting Your Max Cost Per Click
We've received many emails from customers over the past several years asking how high we recommend setting AdWords' max cost per click. Generally, we recommend that our customers set the price somewhere moderately high, between the "base" rate and the max rate suggested by Google. For this entry though, I've decided to discuss a few options that may help you decide where to set your max cost per click to get a maximum return.
What kind of competition do you have?
Before you start, you'll need to do a little experimenting with the keyword tool and traffic estimator to see how high you'll need to bid. If the price to get your ad listed number one, in my opinion, it's a no-brainer. Bid what you need to bid to make sure that you have that number one spot. It will bring you the most visibility and generate the most clicks for your ad. Generally, the higher the ad, the better "quality" your clicks will be as well.
If the cost is relatively low, don't even think about it. Set your ads to be number one and then, if you're working with a limited budget, set your daily max spending limit to a number that is comfortable for you. It's generally better to have fewer clicks of "higher quality" than lots of clicks from "lower quality" traffic.
What if your keywords are highly competitive?
Some keywords in AdWords or in Overture (Yahoo Search Marketing) are incredibly expensive. Terms for gambling, web hosting, insurance, credit cards and many affiliate program related topics are very, very expensive. It's probably just not feasible for you to get the number one slot. If your budget is limited, you might get one to two clicks a day before the budget is gone. In these instances, you're going to need to pick a bid level that is comfortable for you and work on making your ads better. You aren't going to be able to get the top slot by bidding, so you'll need to increase your ad's click-through rate and make it more attractive to the viewers who do see it.
Experiment and decide
Ultimately, the decision is yours. I've found that it pays to have higher placed key words when possible. They seem to convert better than lower placed ads. You're going to have to experiment with your ads though to see what works best for you. Experiment for several days with different maximum click prices to see how your clicks and conversions rank. Only then can you make an educated decision for your website.
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