Daily Budget Caps Versus Active Management

Google’s AdWords system has had daily budget caps for quite a long time. Recently, Overture announced it added a daily budget capping option under the “money manager” tab. When agencies and marketers work with insertion orders (IOs) and without campaign management software, budget caps are often used by search engine reps or media folks to ensure overall IO caps aren’t exceeded.

Overture’s budget cap system is account-wide (you set a budget cap for your entire account), while Google’s is set at the campaign level.

The concept behind budget caps is that Google’s or Overture’s system will determine what percentage of impressions to allocate to your listings to deliver the right number of clicks every day. The goal is to get very close to that daily budget.

Think about budgeting like a car’s cruise control. By setting it at the right level, the campaign won’t exceed budget. The engines allocate lower percentage of available inventory, not 100 percent.

Assume, based on your historical CTR (define) and predicted impression numbers for tomorrow, there would be 100 clicks available at $0.80 each the upcoming day. But you don’t want to spend $80, you want to spend $40. So, the engine only shows your ad half the time. Rotating ads is certainly better than only showing your ad during the first half of the day.

But let’s look at budget caps from a profit-maximizing perspective.

Are budget caps for you? Probably not, and here’s why:

Not all clicks from all keywords have the same value. Some keywords have wonderfully high return on investment (ROI), and some are strong. Some teeter at the edge of unacceptable, but you run them because the ROI is still positive. If you were given the choice to buy only one click, you’d surely opt to buy the click with the highest likelihood to convert to a positive ROI event (sale, lead, etc.) at the best ROI.

When structuring a campaign around a given budget (monthly, daily, etc.), buy all the most valuable clicks first, then move down the click-value chain until you’ve spent your last dollar. If you can execute this mode of buying clicks every day or month, you’ll have a highly efficient, perfectly budgeted campaign.

If daily budgeting is turned on at Google (or an IO is in place), the engine randomly decides when to show your listing and when to skip it to stay within budget. That’s inefficient. Randomness is never as efficient as a perfectly executed profit-maximizing strategy.

To strategically manage a campaign to a budget, don’t use the engine’s random budgeting method. Instead, apply the following manual techniques using conversion and ROI data from your tracking or Web-analytics system (some automated campaign management solutions dramatically speed up this process):

1. Prioritize keywords by ROI.
2. Understand the click volume and spending levels of each keyword listing.
3. Get an idea or ratio of total click inventory you could get versus what you spend now (or, if you have budgeting turned on, what the maximum budget would be if budgeting were disabled).
4. Based on the difference between the potential budget and the amount you want to spend, you have an idea of how much spending you need to remove from your campaign strategically.
5. Examine the listings at the lower ROI portion of your campaign, and take one or more of the following actions:
   • Reduce the bid and position, which simultaneously reduces spend and raises ROI.
   • Disable listings that are total dogs (unacceptable ROI) and already at low positions.
   • Consider dayparting some listings that have high volume and so-so ROI. High-converting times of day may deliver good ROI. Cutting spend during some dayparts removes “bad” clicks from your bill.

With the process above, chances are your highest value keyword listings, such as your brand name and other very targeted, relevant listings that drive the bottom line, will remain undisturbed. You control spend by reducing or eliminating the inferior clicks.

In Google, the ability to set budget caps by campaign means if you aren’t using an automated campaign management solution, you could still group less-than-stellar keywords into a single campaign and budget-cap those keywords as a group.

Daily budgets can also help when you don’t use an automated campaign management system that tracks conversions and quickly catches unforeseen changes in volume or conversion. A music retailer buying “Janet Jackson” last Super Bowl Sunday would’ve certainly appreciated a budget cap. Similarly, “Kobe Bryant” took on a whole new meaning in July 2003 for a sports memorabilia shop.

Don’t leave your pay-per-click (PPC) search marketing campaign’s success to chance. Take control of the listings. Use a profit and ROI strategy to spend in the most efficient manner. If you employ budget cap settings in the engines, use them as a fail-safe or when testing new campaign segments. They’re not the best way to keep spending at the right level.

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