The other day I was talking to one of my consulting clients on phone about return on investment from his Google Adwords campaign. And, he asked me a question that I get several times a week from clients and other online marketers. His question was…“Eric, how on earth can my competitors afford to bid over $4 per click for number one position on top keywords for my niche?! I can’t make a profit on those keywords at just $2.00 per click!”
His concern is a common one among businesses that use pay-per-click advertising to generate traffic. It seems that top positions in most competitive markets are reserved for businesses with more money than sense.
I explained to him that short term his best strategy is to just cast a broader net with his keywords by expanding his keyword list to include thousands of less competitive, yet still targeted phrases, by using tools like WordTracker or Ad Word Analyzer.
However, to remain competitive long term he needs to address real reason that his competition can afford to bid $4 per click and still make a profit…
There are only 4 reasons that another business can bid higher than you on pay-per-click ads.
They have very deep pockets and very dumb marketing managers. You usually find this in businesses that are used to blowing their offline marketing budget on unaccountable “image advertising”. While there are a few like this in every market, these are not ones you need to be concerned with. The dangerous competitors are next two…
They earn more profit from each sale than you. If you are making a $10 profit selling an ebook, yet your competition is earning a $100 profit selling a set of DVDs and a printed manual, then (all else being equal) your competition should be able to afford to bid 10 times what you can per click. For example: