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Bidding and Optimization

Home > English > Bidding and Optimization > Bidding Basics > Bidding Revenue Models

Bidding Revenue Models

Introduction

Our application supports multiple revenue models for search marketer including cost per lead, performance marketers, e-commerce, and specify by conversion type.

Cost Per Lead

Designed for lead generation search marketers who want to generate leads/conversion at a specific Cost Per Lead (CPL). A target Cost Per Lead (CPL) is set. This is the amount the search marketer is willing to pay for a conversion/sale/signup. A Max. CPL is the maximum amount a search marketer is willing to pay for a conversion when the calculated bid is below publisher reported first page bid. Setting Max. CPL to a value greater than target CPL will help maintain traffic on keywords with bids less than minimum first page bid.

Example: A search marketer wants to maximize conversions for $10 per conversion. Click "Cost Per Lead" and then under constraints, enter $10. The bidding algorithm will then set the bids to maximize revenue by spending $10 per conversion.

Performance Marketer

Used by performance marketers who have a value per conversion, and a profit margin goal as a percentage of the value. A fixed value per conversion can be entered, or included if the actual conversion value varies. The target margin is set as a percentage of the conversion value. A Min. Margin % is the minimum profit margin acceptable when the calculated bid is below publisher reported first page bid. Setting Min. Margin % to a value less than the target Margin % will help maintain traffic on keywords with bids less than minimum first page bid. Alternatively, target Margin % and Min. Margin % can be specified as a percentage or ratio of search spend, also known as ROI (return on investment) or ROAS (return on ad spend)

Example: A performance marketer generates leads for mortgage companies. Leads are worth $20-150 depending on location, property type, and credit. The target is to maximize lead volume while maintaining a margin of 30% of conversion value. In this case, the conversion value is then set to "auto" and the lead value used for bidding is based on the actual value per conversion provided via revenue tracking. If the average value per conversion for a keyword is $40, with a target margin of 30%, the conversion value would be:

$40 * (100-30)% = $28.

E-Commerce

Designed for retailers using a Cost of Goods Sold (COGS) model corresponding to revenue. The search marketer enters the estimated gross margin as a percentage of revenue, where gross margin = (Revenue - COGS)/Revenue. A target margin is then entered as a percentage of gross margin, or as a percentage of search spend.

Example: An E-Commerce retailer sells jackets with a gross margin of approximately 60%;a jacket that sells for $200 costs the retailer $80, leaving a gross margin of $120. If the retailer targets a net margin of 30% of gross margin, bidding would be set to spend $84 per conversion ($120 * (100 - 30%) = $84). This would leave $120-$84 = $36 net profit, which is 30% of $120 in gross margin.

Specify by Conversion Type

With multiple conversion types, you can improve your bids by basing them on the type(s) of conversion each keyword is driving. By specifying a value per conversion type, the bids will be based on the actual value each keyword is generating, rather than a blended average.

Example: For our fictional travel company, assume they receive $50 per air reservation, 5% of the total hotel reservation revenue and $10 per car reservation.

The calculated bid is based on each keyword’s total value per conversion and the Target Margin % specified by the user, which is 10% in this example. Our bidding algorithm will calculate a bid designed to produce 10% profit margin for the keywords.

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