When doing Pay Per Click Advertising you'll often see "Bid Gaps" emerge among the cost per clicks of the keywords you're bidding on. For example, the top three positions for the keyword "Mortgage" may be listed as:

Position # 1 $1.00
Position # 2 $.79
Position # 3 $.78

In this example the advertiser in the #1 position is overpaying for their traffic. They could lower their bid to $.80 and still maintain their #1 position, while saving $.20 on each click.

Why Bid Gaps Appear:

Often times advertisers in the top position want to put distance between themselves and their competition to avoid having to check each day to see if they're still in the #1 position. Sometimes when companies upload keywords into their Pay Per Click Advertising program they set all their bids to the same amount, regardless of where their competitors have set their bids.

The most common reason why some PPC advertisers create "Bid Gaps" and overpay for their clicks is they're not aware of the tools available from third party vendors, or the PPC Search Engines themselves to avoid these gaps.

Eliminating "Bid Gaps":

Some Search Engines like Google automatically eliminate "Bid Gaps" by ranking ads using a combination of click through rate, and the maximum bid established by the advertiser. Google claims this allows them to offer advertisers the best ranking on the page at the lowest cost, while guaranteeing the ads they display are relevant to the keywords users are searching on. Google's system involves some trust on the part of the advertiser, since it's impossible to tell what you're competitors are bidding. If your competitor has done a good job optimizing their ad copy to achieve a high click through rate, their ad could appear above yours, even if you're paying a higher cost per click.

Other Pay Per Click Search Engines like FindWhat.Com offer an optional 'AutoBid" feature. This feature allows you to specify the maximum you would be willing to pay per click for each keyword, and the system will automatically adjust your bid to $.01 more than the next highest bidder. If your competitor raises their bid the system will continue adjusting your bid until it reaches you maximum bid.

Example:

Current bid for the #1 position: $.50
Maximum bid that you specify using "AutoBid" $1.00
The amount the system will set your bid: $.51

It's important to note that the cost per click may never reach your maximum bid. We highly recommend using automated bidding features whenever possible. These tools allow you to maintain premium positioning for your ads at the lowest possible costs while saving you time from having to check where your ad is ranked every day, and manually adjusting your bids.

In addition to the tools offered by the PPC Search Engines to eliminate "Bid Gaps", there are several third party Bid Management applications that will do the trick. Atlas OnePoint offers a sophisticated Bid Management tool to effectively manage your bidding strategy across 40 different Pay Per Click Search Engines and shopping comparison sites. BidRank is another tool we recommend for optimizing keyword bids, and avoiding "Bid Gaps".

How You Can Profit From "Bid Gaps":

While creating "Bid Gaps" for your own keywords can be a costly mistake, you can often improve the metrics of your Pay Per Click Advertising program by taking advantage of gaps that appear in the bidding strategy of your competition.

Example:

Position # 1 $1.00
Position # 2 $ .79
Position # 3 $. 78

A "Bid Gap" has appeared between the #1 and the # 2 positions. You can either pay $1.01 to lock in the #1 position, or bid $.80 for the # 2 slot. Given these alternatives it may make more sense to opt for the # 2 position. The slight decline in traffic from slipping to the #2 spot may be more than compensated by the improved ROI due to the lower cost per click.

If you want to play hardball with your competitors by driving their cost per clicks higher, while locking in good positioning for your ads at a lower cost, you can manipulate the 'Auto Bidding" tools to your advantage.

Example:

Position # 1 $1.00
Position # 2 $. 79
Position # 3 $. 78

In this example, if you used any of the "AutoBid" features offered by many of the Search Engines and set your maximum bid to $.99 ($.01 less than your competitor in the #1 position), the system would put you in the # 2 position at $.80 ($.01 more than the next highest bid), while your competitor would still have to pay $1.00 for the # 1 slot (since the system would consider your $.99 maximum bid to be the next highest bid, and adjust your competitor's bid to be $.01 more). Software company Pay Per Click Management offers a "CompetitionBuster" feature specifically designed to take advantage of your competition's "Bid Gaps".

We don't necessarily endorse this approach, but the Pay Per Click Advertising game isn't for the faint of heart. You need to have a well thought out bidding strategy so you don't overpay for your clicks, while still getting the traffic volume you need to reach your goals.

The Pros And Cons Of "Bid Gaps" February 16, 2005