Google Recommends I Pay Them 3x as Much

By shanesnow
Published on July 24, 2008

So I logged in the other day to one of our clients’ AdWords accounts, and saw the following somewhat familiar sight:

This is one of our most productive accounts as far as volume of conversions goes, and our cost per conversion is staggeringly low. Out of curiosity, I took a look at what Google’s recommended budget for us was:

If you squint, you can see that our current budget is $250/day, and the recommended budget is $889.28/day – an increase of 355%! You may also notice that clicks increase by 100%, from 5,480 to 11,944.

Wait a second! So I can increase my budget by 3.5 times and get 2 times as many clicks? Awesome! Not. I’m glad I thought that one through rather than just taking the recommendation no questions asked.

I’d like to try this tactic with some of our clients: “Hi, I was just analyzing your account and I recommend that you pay us 3 times as much as you are now. . .” :)

All Google-mocking aside: Could there be times when increasing your budget by x amount in order to get 1/2x amount more conversions would be a smart thing to do? The answer is yes, but it depends on your profit margins. If you make $10 per lead, then paying an extra $1 per lead in order to get 100 more leads could turn out to be a great move for you. However, if you make $3 per lead, paying that extra dollar might really hurt your bottom line. They key is to find the optimal solution to the following equation:

Total Profit = Net Profit * Volume

If Volume * Net Profit is greater at a higher volume and lower net profit, then you’re good! If Volume * Net Profit is lower at a higher volume and lower net profit, then you’re not.

All I’ve got to say is Google is smart. . . I just hope I’m not as dumb as they think I am!

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5 Responses to “Google Recommends I Pay Them 3x as Much”

  1. Mike says:

    The other thing you should consider in all of this is that those tools that are provided to you are simply estimates. Reality is often 50% over or under what Google reports, and so the impression and click estimates should not be taken literally.

    Also, unless this is a placement campaign, you’re paying for clicks. The only way you’re going to spend 3x as much and receive 2x as much traffic is to increase your CPC. I suppose this could be the case if you were currently exhausting your budget during off-peak hours of the day, and thus didn’t have your CPCs driven up by competition as much as you would if you were shown 100% of the time. But chances are the relationship between budget increase and traffic increase are much closer to a linear relationship than these estimates are showing.

    So my question to you is: If this is one of your most efficient campaigns, and you can spend more money on it, why would you buy less then 100% of the traffic? Spending money on a less efficient campaign, and limiting the spend on your top performer seems like a lost opportunity.

    Think of it as each campaign as a money machine. For each dollar you put into it, the machine gives you an amount of money back.

    When you put a dollar in, here’s what you get:

    Campaign A (The one you’re talking about above) gives $5.00
    Campaign B gives you $3.00
    Campaign C gives you $1.50
    Campaign D gives you $.50

    If you can still put a dollar into campaign a, and get $5 back each time, why would you ever spend a dollar on campaigns B, C, and D? Wouldn’t you buy out all of campaign A’s inventory, and then start buying up all of campaign B’s inventory? (and so forth)

    In the end, if you

    1. Have more traffic to buy
    2. Would like to get more leads
    3. Can spend more money on your best converting campaign

    Then I think it would be silly to not reallocate some budget to this campaign and see what reality is for you.

  2. jameszol says:

    Hi Mike,

    You are right – and what you propose in your comment is a very good theory.

    A couple thoughts (there are always outliers or ‘other’ parts to the story, right?):

    Objective/Goal of the campaign -

    The particular campaign we referenced in the post is exceeding the expectations of the client – while at the same time it is simply not a significant source of revenue for them because it is not a revenue driven conversion. It’s (almost) pure cost while there is some sort of residual revenue from the volume created with this campaign – just not enough to justify increasing said budget.

    If the objective is not driven by ROI, then we will limit the budget on that campaign and apply the majority of the budget towards the revenue producing campaigns in similar fashion that you suggested in your comment. The campaigns that give us the most dollar for dollar are the ones where the lion’s share of the budget will go.

    Clients typically agree with this unless they want to pursue branding or another goal that does not have a clear ROI to it.

    Thoughts?

  3. shanesnow (3 comments.) says:

    Ha ha. Good observation, Mike. One thing that I forgot to point out is that to achieve this higher volume on this account, our CPC would necessarily go up – thus accounting for the discrepancy between volume and cost.

    The point of the post is to point out (in a satirical way) that it’s important to analyze and not just jump into something without proper thought. Also, I wanted to point out that there is an external factor that affects decisions like this: profit per conversion.

    So maybe it wasn’t the best example, but hopefully the point of it makes it through.

  4. Mike says:

    Both good points.

    I do realize that the main topic of your article is to not just listen to Google’s recommendations, and make sure you really evaluate what is good for your business before making changes. I couldn’t agree more. Many, many times Google suggests things (or turns things on in the case of Automatic matching) which are in its best interest, but may or may not be in yours.

    Now with your clarification for this particular situation, I can understand why you wouldn’t increase the budget. But I will push back one more time, for good conversation (I hope)…

    If the goal of this campaign is a soft, or non-direct revenue generating conversion then I would ask you this: What is the value of that conversion to the business? Surely, they are generating revenue at some point from these conversions.

    Lets say the conversion you’re targeting here is the acquisition of an email address. You’d probably want to use that email address to send out offers and eventually turn those into a revenue conversion. And, then in turn could figure out the average value of owning an email address and assign that value as soft revenue when someone converts using this campaign. In the end, you’ll be able to make the budget decision again using an ROI model.

  5. jameszol says:

    These are mini-conversions – and they are important. There are restraints to a client’s budget though – so we have to go for the low lying fruit first and foremost which is essentially what you described above. In this case, the lion’s share of the budget is being well spent on direct conversions/immediate ROI. This smaller campaign is simply supplementary at this point – and is considered a mini-conversion that is important but not enough given the budget. We ask for an increase each month though…so we will start focusing on that tail end of conversions as soon as we have maximized the high value, low hanging fruit.

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