Are your pay-per-click search campaigns being bid by position, or being bid to your economics?

If the former, you may be leaving money on the table.

George Michie of RKG writes:

The little known fact about paid search is this: the quality of traffic is largely independent of position on the page. Conversion rates and average order sizes, ie: Sales Dollars per Click (SPC) vary widely by term, but for a given term are about the same at the top of the page as they are at the bottom of the page. If fact, SPC tend to be slightly worse towards the top of the page than towards the bottom, but this variance is a third-order effect. For all intents and purposes the value of a click in position 10 is equal to the value of a click in position 1.

The key to maximizing sales within your required advertising efficiency is to pay no more and no less per click than you can afford for each term based on the value of the traffic each keyword phrase generates. Bidding more than you can afford on a term means generating more unprofitable traffic; bidding less than you can afford means your ads will be lower on the page, generating less traffic than they could be profitably.

While the SPC is relatively constant for a given term, the CPC required to be in any given position changes all the time based on what your competitors bid. This means that fixing your ad in a position guarantees that when your competitors dictate you’ll spend more than you can afford for traffic. Just as damaging, at other times you’ll be lower on the page than you could afford to be thereby losing traffic that you could profitably have had. In fact, positional bidding guarantees that you will only bid what a term is worth by coincidence, and those coincidences will happen rarely.

George’s full discussion of positional bidding over at rkgblog.