Pay-Per-Click advertising works in an auction-based format, since there are a number of advertisers competing for the same keywords. The higher you bid, the higher your ad will appear. Bids can range anywhere from a few cents to several dollars per click, based on how competitive the industry is.
PPC, by its nature, is a very dynamic form of advertising. As new advertisers come and go in the marketplace, bid prices change on a daily basis. When you’re just starting your Pay-Per-Click ad campaign, it’s important to research what other advertisers are paying. Yahoo, for example, offers a free tool that lets you check how much your competitors pay for specific keywords. The tool is available at uv.bidtool.overture.com/d/search/tools/bidtool. Keep in mind that the bid prices can vary tremendously based on the popularity of keywords. A general keyword, such as “laptops” might be twice as expensive as opposed to a more targeted keyword, like “affordable laptops”.
One of the most common advertiser pitfalls is that they feel that they MUST get the No. 1 position to get results. But , that’s not necessarily the case. By default, Google and Yahoo show around 10 sponsored ads. The top positions tend to get a lot of clicks from people that aren’t exactly sure of what they are looking for or those that are just starting to shop around. As the visitors continue to go to the 2nd, 3rd, and 4th advertiser on the list, they get a better idea of what’s available and tend to settle down.
Research has shown that the best positions are between No. 2 and No. 5, as they tend to be the golden middle between getting the best amount of traffic and the best conversion rates. It’s interesting to note that while the traffic volume decreases as you go down the ranks, the conversion rates tend to increase.
It’s still important to keep your ads in the top, however, as those tend to get a lot more exposure through search engine distribution and syndication partners.
My recommendation would be to start somewhere in the middle and slowly increase your rank while keeping a close eye on your return-on-investment. This will allow you to grow your volume without the risk of blowing your entire advertising budget on inefficient ads.