To answer this question effectively you must first know what kind of conversion ratio you can get with PPC. If you already know this, you are ready to begin calculating your maximum bid price. This applies to AdWords, adCenter, Yahoo! Search Marketing, 7Search, Miva, Kanoodle, AdBrite and anyone else in the PPC market.
First, take your total budget you're willing to spend on PPC for the month. Let's say $1000 to keep it simple.
You have $1000 to spend and you average 25% conversion. You know that you can spend up to $1,000 and need to have at least 101% ROI to make any money at all.
First, take your total profit per unit sold, let's say $2.00.
If you paid $1.00 per click you would have 1,000 clicks and 250 sales (25% conversion). Taking 25 sales times your $2 profit per unit you would earn $500. Your total net would be -$500 for this month.
With that data you need to either double your conversion ratio or bid half. Either way you will break even. So in this situation you would need to have a maximum bid of $.50 to break even, or $.49 or below to make a profit.
When calculating a profit, don't forget to factor in the time it takes to manage this campaign. If you spend 10 hours a month managing your campaing, and make $1,100 total, your time was worth $10 an hour. Then factor taxes and you might have actually lost money!
However, if you are able to bid $.25 and still get 4,000 clicks per month, you are on your way to making $2,000 (200% ROI, $1000 total gross profit)!
Take it or leave it, but PPC can easily increase most companies business and customer acquisition is cheap!
