Maximum CPC you can afford on an adwords campaign

I think that this result may be useful for everyone so I thought to share it

As a result from my experiments using adwords to generate a revenue, I have started building a mathematical model in order to obtain some results from it.

The variables are:

The relations between them are:

Being CLICKS = MAX_PER_DAY / CPC

Using shorter variable names and playing with them a bit the result is:

a = b*c
d = e*f
g = b*c*e*f
h = e*(b*c*f - i)

where i = CPC and h is the net revenue.

Since we want the net revenue > 0, this means e*(b*c*f - i)>0 coming to the two conditions:

e > 0 (of course, we assume e i.e. clicks > 0 because we buy them)

and

i < b*c*f

Where i in this case is the maximum CPC you can afford in order to have a net revenue.

To be more clear, the maximum CPC you can afford is smaller than the product of the sale price, the sale commission and the CTR.

For example, if you sell an article worth $20, where your commission is 5% and your estimated CTR is 5%, the maximum CPC you can bid is $0.05 . In order to be safer you can define a risk factor R greater than 1 of your choice, so the formula would become

i < b*c*f*R^(-1)

I have made a simple XLS file helping you to calculate your maximum CPC that you can find here: http://www.forumboosting.com/maxcpc.xls (will be active in a short time, got temporary problems with my FTP)

I am developing this mathematical model to bring more results and more implementations, using statistical methods and time dependant solutions (for example if you want to track the performance of the campaign depending on the days of the week, of the month, of the year or following an yearly trend). For more informations on the model and its future implementations, you can follow its updates on my seo tricks blog

Hope this helps!
falco85

 

Where is the conversion % in this model?... maybe I am missing something.

 

My technique is to decide a 'comission level' to work towards for example 5% and try to pay google 5% of the total sales from adwords.

If you always keep this target in mind you just adjust your cpc accordingly. Treat G as an affiliate and it helps ease the pain when you pay a large bill.

 

I agree. There should be a variable for conversion rate in the model. The model described here presumes that every visitor to the website will make a purchase, which doesn't happen.

 

5% is my MAX too.

Some companies I work for it's more like 1.5 - 2.5%.

falco, your .xls is 404.

 

Crazy_Rob, now it's working any comment will be appreciated!

 

Still getting an error.

 

http://www.sytesurge.com/ppc-bid-calculator.htm

 

I'm sorry.. I wrote an URL but upped to another

http://scarface.ngi.it/maxcpc.xls this should work