One of the biggest decisions a marketer must make with Google AdWords is how much to bid on a keyword. And how to make that bid.

Google Ads is not a typical auction site

Most businesses have a set budget they want to spend on pay per click and a list of keywords they want to target. The problem is how to get the most out of that budget.

Most likely that comes down to how much you bid on your keywords.

First of all, you have to understand bidding on AdWords.

In some respects, it's similar to how you would bid on eBay.

When you put in a bid on eBay, it is the most your willing to pay for that item.

Your actual bid, however, is only a penny higher than what your next competitor is willing to pay unless they’ve bid more than you.

With Google Ads, it's the same thing. If you bid 5.00 and you’re competitor bids 4, then the most you pay is 4.01

The difference with AdWords, however, is that you don't have to be the highest bidder to win. Simply being in the top 3 spots can generate you business.

Another difference is that your bid might be ignored. If your Quality Score is low, your bid might be overtaken by someone bidding lower, but with a better ad or better landing page.

And depending on the type of bid you make, your actual bid might be much higher than the actual amount you placed.

Confused? You should be.

If you want to succeed with AdWords you have to understand the bidding process and how to make a bid, so you not only get the item you want (a lead, a sale, a request), but you don’t overpay for it.

Here are some things to consider before bidding on a keyword.

Choosing a Bidding Option – Automated Bidding Vs. Manual

While on eBay you have often two options, to either place a bid or to buy it now.

In Google AdWords, you have a number of bidding options and it can be confusing which to choose.

As you’ll see, most of the options are automated with just one that is manual. And that might be the best option for you. At least in the beginning.

Knowing how much to bid on keywords in Google ads begins with bidding options
You have options when bidding on keywords in Google Ads

Manual Clicks means you choose the amount you want to bid. This is the way AdWords started, but over the years Google has been turning more and more to machine learning to improve results for marketers. Yet, in the beginning, I’d suggest using this option, even if Google doesn’t recommend it.

All the other options are automated. Not all of them, however, are in your best interest. The reason I recommend going with manual clicks in the beginning is that you have to have a number of conversions for Google to understand your business.

Enhanced CPA works in conjunction with manual clicks.

You set a bid, but Google will raise it based on the projection that the searcher is more likely to convert. This bidding option can work, but again you have to let your campaign run for a while before using this. Otherwise, Google will implement it too soon and as a result not work for you

Maximize Clicks means that you want to get the most clicks for a keyword.

Again, a good idea on the face of it. Yet, because the focus is on quantity it often results in your cheaper words getting more clicks. The problem is that many of these could be people early in the buying process. The words that have more value and thus more expensive will get less attention.

Target Impression Share actually is three different options disguised as one. You can decide to show your ad on the absolute top of the page, on the top of the page, or anywhere on the page of Google search results. You choose one of these options when choosing Target Impression Share.

To ensure you don't overspend on this strategy you set a maximum cost per click. You also set a percentage for how much you want to show for the option you choose.

Target Impression Share is an automated bidding strategy to use when bidding on keywords.
You have three options when using Target Impression Share

My concern with this strategy is that it's better for branding as you ad shows a lot, but its not based on profitability.

Showing up as the number one ad means nothing if your phrases aren't converting.

Now we get into the options that might be good for your business. Eventually.

Target CPA or Target Cost Per Acquisition In this, you set the most you want to pay for a result.

Let’s say the most you can make off of a product is when it costs 4 dollars to acquire a lead.

Using your historical data and information they develop about a searcher, they will adjust your bid so that on average your cost per acquisition will be your number.

Yet, this can only work if you’ve been running ads for a while and have historical data that shows how much it currently costs for you to get a conversion.

They suggest you have at least 15 conversions over the last 30 days, but I'd recommend using it only if you have more than this. I'd suggest using this criteria for most of the following strategies.

It's critical that you have conversions set up correctly..

Maximize Conversions means your telling Google you want as many conversions for your daily budget as possible. Google’s automated program finds an optimal bid for your ad each time it's eligible to appear, based on various signals associated with the searcher.

Again this only works if you have historical data which Google can use to base their criteria on.

Target ROAS helps you get more conversions at the target return-on-ad-spend you set. To use Target ROAS bidding, your campaign must have at least 15 conversions in the past 30 days at a minimum. The ideal number of conversions in that period, however, is 50.

As you can see, most of these automated systems only work if you have historical data that Google can use to determine which searchers have the most potential for becoming leads for your business.

If you start off with many of these automated systems without having the benefit of historical data, you could be overpaying for words that don’t even convert.

So we’re back to using manual bidding in the beginning.

Learning Where the Market is For Your Keywords From Google Keyword Planner

Before you can bid you must first develop a keyword list. The tool to do this is the keyword planner in Google Ads.

I won’t go into how to use this tool in this article. The one thing I will advise you is to make sure the search for keywords is in your market. If it says the United States in the upper left corner, but your market is San Diego, then change that.

Google Ads keyword planner is a way to estimate bids for potential keywords
In Google Keyword Planner discover what it will cost to get on the first page or in the top spot.

Focus on two columns in the planner.

Top of page bid (low range) tells you the amount that likely gets you on the page and occasionally even the top spot. Top of page bid (high range) is the number you most likely need to bid to be the top position in the search results.

With both of these the numbers are an approximation and once you begin bidding, you might find both of these numbers are inaccurate.

What I would suggest is that you bid the low range, if not even a little smaller. That’s because you want to start out slowly with your campaign. Unless you have a short window to run your campaign, there is no reason to get into the market aggressively. Especially if you have a limited budget.

One of the many advantages of Google ads is that you start to get data right away. Let your campaign run a day or two and then look to see what impressions you have and hopefully clicks.

If there are no impressions, then it means you have to bid higher. Likewise, if you see your average position is 3 or higher, then you need to bid higher.

In contrast, if you see a lot of impressions and a position of 2 or 1, with little to no clicks, then you might want to revise your ads.

Before You Set Your Bid, First Set Your Monthly Budget

How much you bid should be determined by how much you can spend.

Let’s say your budget is $1000 a month. That means you should set your daily spend to about 33 dollars a day. If you’re bidding 10 dollars a click that is just 3 clicks a day. That’s not very much. Your campaign could be out of budget in a couple of hours.

Ideally, you want to be able to get 10 clicks a day.

One possible response is to cut your bids in half to get double the number of clicks. Provided your bid is enough for you to still get significant impressions.

A second option is to look for cheaper keywords to target. Yet, you want to make sure these keywords are still relevant to your business. Otherwise you're just getting a lot of traffic with little chance of succeeding.

Your ultimate goal is to get the highest return on your investment with Google Ads. So the more clicks you can get for the words that you value the most the better off you are. Provided the words are relevant.

Don’t Get Caught Up in Being Number 1

I hear customers all the time tell me that they need to be number 1 in order to get business. And the data does show that the top 3 spots usually convert the best.

That doesn’t mean you need the top spot right away. It can be expensive to be number one. Most often you can convert by being in the number 2 or 3 spots without the high cost.

And you might find yourself in the number one spot as the day progresses.

Most likely the most competition you’ll have is at the beginning of the day when everybody’s daily budget hasn’t been spent.

As your competitors get clicks they may start to drop out of the competition. Halfway through the day, you might get that top spot without spending nearly as much as what it would have cost earlier in the day.

Google no longer shows average position for your keywords. Instead they provide two other competitive metrics they feel are more important. The reason is that an average position of 1 only means you have the top ad. Not the top spot on the search results page.

Search top is means your ad is one of those that appear at the top of the page, above the organic listings.

Search absolutely top is, means your ad is number 1.

If you’re getting enough clicks each day to reach your daily budget than don’t increase your bid. In fact, if you’re reaching your daily spend regularly, then consider lowering bids across the board to get more clicks each day.

Focus on the Words that Show Your Prospects Have Intent or a Need

When you first start adding keywords, your first instinct will be to add as many as possible. Yet, all keywords are created equal.

No matter if you're budget is limited or unlimited, you want to focus first on the words that seem to have the most potential to convert.

For example, a plumber might put together a list that includes the phrases fixing a leaky faucet and plumbing emergency. With the first phrase, the person might be looking to take care of it themselves. With the latter, they know they have a problem they need to fix right away and thus are highly motivated to hire a plumber.

Try to find the words that show your prospects are looking for the specific services or products you offer.

What is the Value of a Conversion

Perhaps the greatest influence on what to bid on a keyword is how much revenue that keyword can generate.

I've had clients that bid as much as 75 dollars for a keyword, knowing that they could generate a lead with just a few clicks that would generate them thousands of dollars.

Unfortunately, this is an exception, not the rule. Most likely you'll need a lot of clicks before you see a conversion.

Still, whatever the cost per click, know what a conversion is worth to you.

Whether you have a list of 10 keywords, or a thousand, you’re going to find some keywords have a higher potential for conversion.

Monitor your words through various means, including Google Analytics. Once you determine what words work the best, focus on those. Make these your high priority words and which you should bid on the most.

Remember Your Maximum Bid Could Be What You Actually Pay

Google AdWords determines your bid based on your maximum bid and the bid of the next bidder on the keyword. As I mentioned your bid will be one cent more than the bidder below you.

Unfortunately, this can create a misconception when people place their bids. They overbid thinking their bid threshold will never be reached.

Yet, if your keyword suddenly gets more competitive you could suddenly be paying your full bid. This could result in overpaying for keywords and a complete drain of your daily budget.

I had a client who consistently wanted to bid extremely high on one of his keywords because he always wanted to be number 1. That was fine when his competitors were bidding much lower than he was, which kept his costs down.

When a new competitor entered the scene and bid high, as well, my clients bids suddenly tripled in cost.

Why Your High Bid Might Mean Nothing - The Influence of Quality Score

Part of Google’s pay per click algorithm is the Quality Score. Your ad position is determined by your Ad Rank, which is your Quality Score multiplied by your bid.

If you have a high Quality Score you can actually have a lower bid then your competition, but still show up in a higher position. Google is interested in the ads that people click on, not the ads that someone bids high for, but which no one clicks on.

Click through is one of the main criteria for Quality Score and this comes down to how people respond to your ad. Spend some time on your ads to create something that captures the attention of your prospect and compels them to click on your ad.

Once you factored in all of these elements, then set your bid for your keywords.

Monitor, test, and evaluate all the time. Your bid is often going to change, so work to make sure it's of value and not breaking your budge