Forgive the rather dry post, but I am an online marketing consultant and love what I do.  So bear with me because this is the sort of thing I get excited about.

I’ve managed search marketing campaigns for years and have great respect for the Rimm-Kaufman Group, who like me provide paid search services for online retailers.  I ran across an article which echoes tests I have run for clients.

The question:  If you manage your campaigns at a profit target (typically “A/S %” or ad spend over sales), does increasing your bid and gaining a spot or two in rank result in enough of a sales increase to justify the extra cost?  This is really an elasticity test.  (I slugged my way through Econ in college but darn if it hasn’t come up many times in my professional life.)

In short, is the extra traffic you gain by increasing CPC’s “worth it” if you’re already managing to your target A/S?  Their findings reflect exactly what I have found in my own tests:

Much more ad cost. A bit more sales. And much less profit, both in percentage and in absolute dollar terms… Google loves these “stomp-on-the-gas” tests. Not only does one advertiser pay more, often additional advertisers who rely on position crawler bidders scramble up the deformed bid landscape as well. CPCs soar, sales stay flat. Bad for the advertisers, great for Google shareholders.

Potential Click Increase by Rank Change

Nice job RKG, I love reading your stuff so keep up the good work!