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Why don’t bid management programs optimize for profit?

Bid management programs are indispensible for paid search campaigns. Without them, you’d spend all your time recalculating what the right bid would be and have no time to do anything else. But you can’t just let them run on auto-pilot. Bid management programs can optimize on many metrics, but gross profit is not one of them—and that’s what most businesses optimize. So what can you do?


Google and Yahoo! are trying to make bid management easier. Google’s Conversion Optimizer and Yahoo!’s Campaign Optimization are both attempts at this.
Both help you optimize your conversions based on how much you spend to get them (Cost Per Action and return on Advertising Spend both get after this same concept). But what you really want to optimize on is profit, or even Lifetime Value.
And today’s tools don’t do that, because they are transaction-oriented, and you probably can’t calculate overall profit (although you can calculate profit margin) or Lifetime Value. Profit requires that you understand how to re-allocate your fixed costs every time you sell something, which accountants are only starting to think about. You can think of this as continuous accounting, where you know where you stand all the time, rather than only at the end of a period.
Until we get there, we are stuck measuring transactions in isolation and living with CPA, ROAS, or (better) profit margin. So how do you cope with that.
First, you must understand that these automated optimizations won’t necessarily optimize your profit. You might have to test a big increase in bids to see what happens. You might need to kick-start your bids in a whole new neighborhood to see what sales result, and then let your automated systems kick in from there.
Automation is a good thing, but you must routinely examine how it is working. These systems don’t yet substitute for human judgement.

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Mike Moran

Mike Moran is an expert in digital marketing, search technology, social media, text analytics, web personalization, and web metrics, who, as a Certified Speaking Professional, regularly makes speaking appearances. Mike’s previous appearances include keynote speaking appearances worldwide. Mike serves as a senior strategist for Converseon, an AI powered consumer intelligence technology and consulting firm. He is also a senior strategist for SoloSegment, a marketing automation software solutions and services firm. Mike also serves as a member of the Board of Directors of SEMPO. Mike spent 30 years at IBM, rising to Distinguished Engineer, an executive-level technical position. Mike held various roles in his IBM career, including eight years at IBM’s customer-facing website, ibm.com, most recently as the Manager of ibm.com Web Experience, where he led 65 information architects, web designers, webmasters, programmers, and technical architects around the world. Mike's newest book is Outside-In Marketing with world-renowned author James Mathewson. He is co-author of the best-selling Search Engine Marketing, Inc. (with fellow search marketing expert Bill Hunt), now in its Third Edition. Mike is also the author of the acclaimed internet marketing book, Do It Wrong Quickly: How the Web Changes the Old Marketing Rules, named one of best business books of 2007 by the Miami Herald. Mike founded and writes for Biznology® and writes regularly for other blogs. In addition to Mike’s broad technical background, he holds an Advanced Certificate in Market Management Practice from the Royal UK Charter Institute of Marketing and is a Visiting Lecturer at the University of Virginia’s Darden School of Business. He also teaches at Rutgers Business School. He is a Senior Fellow at the Society for New Communications Research. Mike worked at ibm.com from 1998 through 2006, pioneering IBM’s successful search marketing program. IBM’s website of over two million pages was a classic “big company” website that has traditionally been difficult to optimize for search marketing. Mike, working with Bill Hunt, developed a strategy for search engine marketing that works for any business, large or small. Moran and Hunt spearheaded IBM’s content improvement that has resulted in dramatic gains in traffic from Google and other internet portals.

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