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.
