AdWords Introduces Preferred Cost Bidding

    April 17, 2007
    WebProNews Staff

AdWords introduced a new bidding option called "preferred cost bidding," an alternative to setting a maximum cost-per-click (CPC). In essence, for the advertiser with less time and/or fewer resources, the option puts AdWords management on Google’s shoulders.

Marketing Pilgrim’s Andy Beal compares it to a mutual fund model, and Efficient Frontier’s latest "marketplace" approach. The advertiser sets the ROI and pricing goals and lets Google do the rest.

Instead of setting the maximum CPC or CPM (cost-per-impression), advertisers set the "preferred" CPC or CPM bid, representing the average price a marketer is willing to pay.

"For example," writes Vivian at InsideAdwords, "suppose you want to pay an average CPC of $0.50. Currently, you need to regularly monitor and adjust your maximum CPC bids to keep your costs at or around $0.50 per click.

"Using preferred cost bidding, you can simply tell us that you want your average CPC to be $0.50, and we’ll manage your bids to reach that goal."

The option comes to being through a phased rollout – available to some immediately, and to everyone else over the next few days.

Called an "advanced bidding option available for keyword- and site-targeted campaigns," the option is intended benefit advertisers who:

1.    Would rather target an average CPC or CPM than say the most they’re willing to pay
2.    Want more consistent AdWords advertising costs (no day-to-day) changes
3.    Don’t want to continually monitor and adjust keyword bids

Google says keyword status will not be affected by switching to the preferred CPC bidding, and that advertisers probably won’t see much change in ad position. Ad position may fluctuate, however, as the system adjusts to the targets specified, but position changes should be "relatively minor."

Here’s a big however, however. Position preference doesn’t work with preferred cost bidding. The AdWords system automatically adjusts ad positions as the preferred cost is reached.

The company says it takes at least four days for costs to stabilize, with actual costs differing from actual bids at any given moment as the system works to achieve the preferred bid over time.

Similar to the way the AdWords Discounter reduces the price of the top ad to the minimum needed to maintain the position, the preferred CPC model adjusts so that actual costs may be lower than specified bids.

Google also makes these guarantees:

·    For preferred CPC bids, the actual cost of any one click won’t be more than twice your bid.

·    For preferred CPC content bids, the actual cost of any one click won’t be more than four times your bid.

·    For preferred CPM bids, the actual cost of any one thousand impressions won’t be more than four times your bid. It is very rare that a click or thousand impressions actually costs as much as these limits. Our system allows this flexibility in order to reach your preferred average cost as effectively as possible. In addition, you can always control your costs by adjusting your campaign budget.

Preferred cost bidding works with any ad type – image, local, et cetera.