Last week I watched a lecture by John Gagnon, a Bing ads evangelist, titled the “Core Concepts of Paid Search Marketing.” The two main concepts that stuck with me from his lecture were how the PPC bid for a given advertisement is determined and the “Search Funnel” as a means of understanding consumer behavior and focusing advertising.

The calculation that goes into determining a PPC bid is quite simple. You find the profit margin your business earns from an average sale. This can be determined from sales reports over time. Next, you determine the conversion rate for an advertisement. This is the percent of people who click on the ad that actual follow through and make a purchase on your website. This too has to be determined experimentally over time. Multiply these two numbers (margin and conversion rate) to determine your break even point for advertising PPC. This is the maximum amount of money you can spend on advertising before you begin to lose money on an average sale. Some sales will be larger than the average so you will have more margin left over. Some will be smaller so you might actually lose money through advertising. But on average over time, this is the most basic way to calculate a PPC advertising budget.

The second concept I learned is called the “Search Funnel.” This describes the idea that when people begin looking for product information, they begin with very broad terms and end up narrowing it down to a specific brand. Gagnon was making the argument that advertising should become more focused as well. Less money should be spent on advertising with general terms. At that point, the consumer is not yet ready to buy. As their search becomes more focused, the marketer should intensify advertising.

I disagree slightly with this strategy. From my point of view, some amount of advertising budget should be spent on general terms. At this point, most consumers will not be clicking on advertising. They are simply searching for information. However, if your website shows up at the top, you have created a touch point. The advertisement should still focus on an actual conversion. This lets consumers know that clicking the link will take them to a page for buying — not information. This will reduce overall clicks and reduce the advertising cost. However, your website has still been “seen” by the consumer and they will remember it for future reference. As the consumer narrows their search and begins looking for a particular brand, it is too late to advertise. Any clicks at that point will be from people who were going to purchase from you anyways. The result is accrued cost for no gain.

How have I applied this? I think it is best to focus advertising for my client on broad keywords related to his business. For example, someone interested in his services may begin by searching for terms like “Independent,” “Local,” and “Import” in relation to “Mechanic.” Thus I want to focus advertising on these terms. However, I want the ad-copy to read in a manner that will prevent people from clicking unless they are ready for conversion. What does this mean? The text of the ad itself should imply action of some form. Something that a consumer would be unwilling to do until they are ready to commit. The important thing is that even if the customer does not click the ad, we have still created an impression and touch point. I would eliminate any advertising for keywords related to the specific name “London Motorworks.” If a consumer is searching for this text, they already know what they are looking for and the use of an advertisement would be a waste of money.

An example ad copy for london motorworks

Here is an example ad copy I have created. You can see it is tied to the keywords “local mechanic.” However, the text implies required action: “Book appointment.” Consumers will not click this link to find more information. They understand it is transaction related instead of informational. But the impression still has an impact and this business has been added to their consideration set. The ad also includes specific areas that consumers are likely to be loyal to (Waldo and Brookside), and includes friendly words such as “introduce,” “serving,” and “yourself.” This favorably positions the impression in consumers minds as one that is local and friendly.