Risk management in PPC Advertising

Risk management in PPC Advertising

I am going to refer on this article more to risk management for advertising platforms like Google Adwords or Yahoo! Bing Network Contextual Ads. Here the bidding system is relatively easy to understand: highest bidder with quality ads will be displayed first.

The risk in PPC advertising comes from competitors. If one or more competitors will increase the bidding cost for certain keywords / expressions and you want a certain (first) position guaranteed, then it is a risk that you can reach the bottom very fast and end up with a inefficient PPC campaign.

What can be done?

Before answering this question, maybe we can ask ourselves “Why is our competitor is bidding that high?”. One answer is because he is irrational and he does not really understands the mechanics of PPC, or because he has a lot of money to spend and wants to eliminate any competition.

So what can you do? You can always work on the quality of your ads. Or you can always find new traffic from other keywords. But if this does not work and if you have budget limitations, you have to pass the comfort zone and be satisfied with the position bellow. In PPC advertising, the budget for the second position is calculated based on the third position, not on the first one. You have to be patient until your irrational competitor will finish his budget (because obviously, if he will engage into irrational bidding, he will soon face the fact that his bidding has not economically viable).

But what about when almost all of your competitors are deciding to raise their bids on a certain keywords / expressions that you once controlled? Are they all chaotic or irrational? Maybe it is a clue that they know something you do not know. Maybe their behaviour is not random and the advantage comes from a point of view still unexplored by you.