SEM PPC Optimization: How To Maximize the Revenue at a Targeted ROI

Search engine marketing, or SEM for short is a powerful tool if used correctly. If you’re new to the world of SEO and SEM, it can be a bit overwhelming at first- that’s why we’ve pulled together this post with all the basics you need to know about optimizing your campaign.

The internet has created many opportunities for small business owners. However, the cost of advertising on traditional networks like Google AdWords can be prohibitively expensive. This is where SEM PPC comes into play! How it works and how to use it effectively are discussed here in this post that discusses targeting ROI while maximizing revenue at a targeted rate with aggressive bidding strategiesSearch Engine Marketing is an essential part of any company’s marketing strategy. By using the right keywords and having the correct landing pages, you can increase your website conversion rates while also increasing brand awareness. This course will teach you to optimize for many different search terms so that you maximize your revenue at a targeted ROI.

SEM PPC Optimization is the process of maximizing the revenue at a targeted ROI. This can be done through many different methods, but one of the most common methods is SEM PPC Optimization.

Advertisers may increase their earnings by using profit-driven optimization approaches. Where the current ROI equals 1/E, where E is the current price elasticity (see the article: How to Drive Profit with PPC Campaigns), the profit is greatest. As a result, the campaign’s goal ROI cannot be decided only on the basis of corporate management’s whim. It is completely determined by the form of the click price elasticity curve.

However, this paradigm cannot always be used immediately in reality. Consider an advertiser, such as a fledgling firm, that wants to develop as quickly as possible. Profit isn’t their first objective in this situation. They don’t have the cash to invest for the long term, therefore they can only fund ads with their present profits. Their objective is to maximize income with a short-term return on investment of zero.

Classic Optimization with a Zero Return on Investment

At ROI=0, the traditional technique to optimization is straightforward. If the keyword’s short-term ROI is favorable, the bids are increased to enhance income for all keywords. If the short-term ROI of a keyword is negative, the bids are dropped to boost profitability until the ROI is equal to zero. If this optimization is successful, all keywords will have a ROI of zero. Of course, in this instance, the overall ROI will likewise be zero.

Isn’t this the way we optimize? We reallocate funds from ineffective efforts to more effective ones. 

Is this, however, the best way to optimize profits? Using the same ROI for keywords with varied price elasticity is a mistake, according to profit-driven optimization principles, since it overlooks the possibility of possible trade-offs across keywords if the keywords have different price elasticity.

What if we raise prices for keywords with greater elasticity while lowering bids for keywords with lower elasticity? As a result, we may improve the number of clicks and conversions while spending less money (see Profit Driven PPC Management in Practice).

So, how can we use this strategy if the campaign’s overall ROI objective is fixed, like in the case of the startup firm mentioned above, where the fixed ROI target was zero?

Fixed-return-on-investment model

All of our keywords perform at a given ROI if we optimize the account in the traditional method. As a result, the click value for each term is equal to the cost of the click multiplied by (ROI+1):

— where V is the click’s value (value of conversion multiplied by the conversion rate).

Consider that the whole account is made up of just two keywords, keyword 1 and keyword 2. This will make the computations easier. The campaign is optimized in the traditional way, and both keywords get the desired ROI. The cost-per-click (CPC) of the keywords is raised or lowered until:

SEM-PPC-Optimization-How-To-Maximize-the-Revenue-at-a

This isn’t the only CPC combination of the two keywords with a total ROI equal to the goal ROI.

Let’s say we change the CPC objective for both keywords. Because the price elasticity is frequently not zero, changing the CPC also alters the number of clicks (Clk). Following the modifications: 

1636525325_351_SEM-PPC-Optimization-How-To-Maximize-the-Revenue-at-a

The desired return on investment (ROI) is set in stone. As a result, the average ROI will stay constant after the adjustments, i.e. the total value of clicks equals the cost multiplied by (ROI+1):

1636525326_999_SEM-PPC-Optimization-How-To-Maximize-the-Revenue-at-a

Price elasticity (E) is defined as follows:

1636525327_572_SEM-PPC-Optimization-How-To-Maximize-the-Revenue-at-a

After the alteration, the overall conversion value’s growth (G) is:

We can compute the answer since it’s a system of equations:

1636525328_665_SEM-PPC-Optimization-How-To-Maximize-the-Revenue-at-a

So, if we modify the goal CPC, we know what the revenue growth (G) will be. The following is the question we’re searching for a response to: What is the cost-per-click (CPC) adjustment that will optimize overall growth? (without changing the total ROI). 

When you’re at the top of your game (G), you’ll be able to:

1636525329_698_SEM-PPC-Optimization-How-To-Maximize-the-Revenue-at-a

The expenditure is calculated by multiplying the number of clicks by the cost of each click:

The CPC adjustment for maximum income growth, according to this set of equations, is:

1636525330_906_SEM-PPC-Optimization-How-To-Maximize-the-Revenue-at-a

Keyword 2 has a symmetrical solution:

1636525332_260_SEM-PPC-Optimization-How-To-Maximize-the-Revenue-at-a

The article Fixed ROI Profit-Driven Optimization has the exact computations.

The Elasticity Adjustment Formula in General

We believed there were just two keywords in the account at the start. If keyword 1 is replaced by any keyword I in the account and keyword 2 is replaced by the sum of all (a) keywords in the account except keyword I (a-i), the elasticity adjustment computations will be the same:

1636525333_699_SEM-PPC-Optimization-How-To-Maximize-the-Revenue-at-a

The computation of spend a-i is simple since the total expenditure of Sa equals the sum of all keyword spends, and:

How do you calculate total elasticity? As stated in the definition:

1636525334_712_SEM-PPC-Optimization-How-To-Maximize-the-Revenue-at-a

If the relative change in CPC is the same in all campaigns (the same percent change):

1636525335_356_SEM-PPC-Optimization-How-To-Maximize-the-Revenue-at-a

The overall elasticity should then be computed as follows:

1636525336_937_SEM-PPC-Optimization-How-To-Maximize-the-Revenue-at-a

As a result, the elasticity a-i is calculated as follows:

1636525337_254_SEM-PPC-Optimization-How-To-Maximize-the-Revenue-at-a

Application in Real Life

This model’s implementation is straightforward. The aim of traditional optimization is for all keywords to have the same ROI and the keyword’s target CPC to be:

1636525338_872_SEM-PPC-Optimization-How-To-Maximize-the-Revenue-at-a

To optimize revenue, the target CPC, which is the outcome of traditional optimization, should be changed using the elasticity adjustment for all keywords. If the adjustment for keyword 1 is 0.2, it suggests that the keyword’s target CPC should be raised by 20%. If the adjustment for keyword 2 is -0.35, this suggests that the keyword 2 target CPC should be reduced by 35%:

1636525339_41_SEM-PPC-Optimization-How-To-Maximize-the-Revenue-at-a

The model implies that elasticity is constant across the board. That is to say, the flexibility of the CPC changes is the same. Of course, this is not the case. However, if the CPC changes aren’t considerable, we shouldn’t anticipate a major change in elasticity.

As a result, in actual implementations, it is advisable to avoid large CPC changes and to make no more than 10% or 20% modifications, depending on our tolerance for ROI volatility. The optimization is a method, and the cap will only slow it down a bit. Regardless of the cap, each subsequent adjustment will become more accurate.

Furthermore, we will estimate the elasticity using historical data, which may vary from the actual elasticity. As a result, we should keep an eye on the overall ROI and, if required, make modifications to the desired CPC.

Finally, it’s vital to note that the CPC and numbers reflect the actual average CPC paid for the clicks, not CPC bids. In most cases, the offer is higher. The difference between the highest bid (max CPC) and the actual CPC is determined by the auction mechanism. It may vary depending on the keyword and may alter over time.

Summary

The traditional method of optimization (using the same ROI goal for all terms in the account) is inefficient. If there are simply price elasticity variations between terms, there are possible trade-offs can be made without affecting the overall ROI. If the elasticity is stronger, we should raise the target CPC; if the elasticity is lower, we should reduce it. The overall return on investment will remain the same, but the number of clicks (and conversions) may vary. 

The profit for an unlimited number of CPC modifications when the total ROI equals the goal ROI is shown by the red curve in the image below. The method given in this article may be used to determine the target CPC adjustment that will result in the largest overall volume of clicks and total profit:

1636525340_259_SEM-PPC-Optimization-How-To-Maximize-the-Revenue-at-a

Have you tried any of these methods? Please share your ideas in the comments section below. 

SEM PPC Optimization is a process that can be used to improve the revenue at a targeted ROI. This process has been proven to work in many different industries, and it has been found that SEM PPC Optimization can increase revenue by up to 300%. Reference: how to improve sem.

Related Tags

  • how to increase roas facebook
  • adroll roas calculator
  • how to improve roas
  • why is it important to have a continuously active paid search campaign for e-commerce
  • why is search engine optimisation (seo) so important for ecommerce?

Leave a Comment

Your email address will not be published.