Many companies take advantage of the Budget control in Google AdWords to limit their daily and monthly spending to their desired goal. What not everyone realizes is that this can result in higher cost per click (CPC) and fewer clicks! This is because the way that AdWords ensures you don't exceed your budget is by limiting the number of times your ad is displayed (which limits clicks).

Here's a simplified example to illustrate the point. Say you have only one keyword and it has the following monthly cost and volume data (hypothetical data):

Position   Bid   Clicks   CTR   CPC   Cost
1   $11.39   1,600   4.0%   $8.30   $13,280
2   $7.14   1,100   2.8%   $5.20   $5,720
3   $4.52   800   2.0%   $3.43   $2,744
4   $3.91   700   1.8%   $2.95   $2,065
5   $3.27   600   1.5%   $2.44   $1,464
6   $2.64   500   1.3%   $1.94   $970
7   $2.03   400   1.0%   $1.47   $588
8   $1.40   300   0.8%   $1.02   $306


First, imagine you have a bid of $7.14 (since this is an important keyword, you want to rank high) and your monthly budget is $2,750. In this case, your ad will show up at position 2, but only $2,750/$5,720 = 48% of the time. This means you get 48% x 1,100 = 528 clicks. Your cost per click is $5.20, which brings your monthly spending in right under your budget of $2,745.60.

Now, imagine that your bid was $4.52, with the same budget of $2,750. Here, your ad shows up in position 3 but shows 100% of the time. Now, you get 800 clicks at a cost per click of $3.43 for a total cost of $2,744, coming in right under your monthly spending target.

Comparing these two cases, in the first one you were budget limited and got 528 clicks, and in the second case, you used your bid to achieve your spending target and got 800 clicks for the same cost. That's why managing PPC spending using your budget results in higher CPC and fewer clicks.

PPC Management Software Makes It Easier
Of course, it can be hard to estimate which bid will result in what cost, especially when you are dealing with 100s or 1000s of words instead of just one. However, this is exactly what we designed Marketo's pay per click management software to help you do. You simply tell the tool how much you want to spend each month (at the campaign or ad group level), and the software optimally allocates that spending across all your keywords to drive the most conversions and calculate the bids that will achieve that target spending. You can check this out yourself, and please tell us what you think.

Watch Marketo's Bid Management Software Demo.
Take a free 8 hour Bid Management Test Drive.
Sign up for a 30 day free trial.

Jon Miller is VP of Marketing for Marketo, a provider of affordable, easy-to use-marketing automation software that helps B2B marketing professionals drive revenue and improve accountability. Jon's blog, Modern B2B Marketing, explores best practices in business marketing, ranging from pay-per-click management to lead nurturing to marketing accountability. The Strictly Business column appears Wednesdays at Search Engine Land. For more information check out http://www.marketo.com or http://blog.marketo.com.