Automated Keyword Bidding? More Like Automated Money Sink

Search Engine Marketing agencies scale not by creativity or innovation but by overhead. This is a fact that many agencies deny but is the cold hard truth. This is true even for agencies that have developed in-house technology or license technology from others.  Even the “advanced” agencies are not very sophisticated – they will use rules-based bidding that works half the time because they still require humans to double-check if they actually care about their client’s bottom-line.

With these bidding systems being rules-based, they require account managers to make customizations (I believe the term is “settings update” after hearing a recent sales pitch) depending on the account/campaign.

So what are the flaws with rules-based keyword bidding? Why is it not effective?

Most rules-based bidding can only accept a limited amount of data (no matter what search marketing agencies may sell you on) – for example: 7 day, 30 day and lifetime “snapshots” of how your keywords are progressing. The agencies will check to see your cost-per-acquisition on a 30 day period, measure how much they need to change your position based off of the last 7 days, and see whether something’s happened and your keyword needs to be paused based off of the lifetime.

It is impossible for agencies to deliver on the “100,000 keywords X 5 match types X 3 ads X multiple networks” sales pitches because it requires an enormous amount of data. Take a look at the executive team of the agencies…last I checked, an MBA does not understand machine learning. This requires a PhD from a school such as Stanford and anyone who actually knows what they are doing is working at Google and not at a search marketing agency (sorry, a PhD from a state school does not necessarily qualify as “World Class”).

If an agency wants the system to look at more data, that will require more hard-coding of rules (“look at 45 days and weight X amount”, “look at one year and weight at Y amount”,…). This approach is very flawed, because accounts may vary and some might only have 6 months and would not quality for the one year rule – others may have dramatically different cost-per-clicks and cost-per-acquisition.

Many agencies will use keyword bidding to determine a change of the keyword bid by a percentage increase/decrease which may suffice if your keywords are hovering around $1 a click. But you will see serious, volatile changes if your cost-per-click averages around $10 (I have had some accounts like this). A percentage increase/decrease can dramatically increase the bid by several dollars (versus cents) and can result in killing accounts.

Another area to watch would be when you have different cost-per-acquisitions for different products, campaigns or keywords. If you are selling various products, you might have specific margins and be able to spend up to X amount, depending on the product purchased. Rules-based systems wouldn’t be able to handle this because they are based on CPA targets.

Agencies would have to go into their “settings” and enter a ballpark number for your overall average sales  and make measurements from there. This will mean that most of your keywords will not be accurately tracking to their appropriate CPA — they will either be too low, which means you are not getting all the volume you deserve, or they are too high and you are actually not turning a profit for that sale.

So whenever you hear a sales pitch from an agency with “proprietary technology” and are ROI-focused do what I do and say “K, thanks, bye!”.

Opinions expressed in this article are those of the guest author and not necessarily Search Engine Land. Staff authors are listed here.

About The Author

Nick Abramovic