Google Bid Simulator

Google have announced a new Adwords feature called Bid Simulator.

From the Google Adwords blog:

Bid Simulator takes some of the guess work out of cost per click (CPC) bidding by estimating the number of clicks or impressions you could have received if you had used a different maximum CPC bid.

Google have also provided a tutorial video showing you how to work out your value per click, and how to use this value to maximize your profits.

This video provides a great overview of the economics of PPC bidding, then goes onto show you how to use the Bid Simulator tool to arrive at the most profitable bid.

In summary:

• Determine your max profitable CPA
• Determine your conversion rate
• Calculate your value per click
• Adjust your bids so value per click = ICC (Inceremental Cost Per Click)

This tool, whilst useful in terms of taking a lot of trial and error out of bid setting, will provide marginal benefit in areas where the keyword auction is fierce. If the auction is busy above you, then you’re still going to need to raise you bid a lot for minor increases in volume.

Indeed, some of the recommended bid prices seem very high. The danger is that some people may see this as a helpful autopilot, when really it’s just another “suggestion” tool. Be wary.

The tool is possibly most useful when there is moderate activity in the bid range. Andrew Goodman suggests that Bid Simulator might help a lot in terms of saving cash on the low side:

Case by case, it gets interesting. Take, for example, an account where you figure you’ve done a great job whittling average CPC’s down to 23 cents. Now on a lot of the keywords that you’re getting for 15 cents, you’re not doing great ROI-wise, but you’re reasonably content since the price is low by historic and industry standards, you don’t feel like risking the effort to go down to 11 cents. I think the bid simulator may be helpful in helping advertisers decide when to take risks like that. Shaving those few pennies on lukewarm keywords, across several hundred keywords and a thousand clicks a day, can add up to a lot of saved cash you can then turn around and devote to better performing keywords or channels (or simply, profitability).

Also, as it is a simulator, your actual mileage out on the real Google may vary.

Here’s a presentation on how to use the bid simulator within your Adwords account.