If you are using pay per click search engines to drive traffic your site, keyword bidding is the most important part of your PPC campaign.

Two things are important here:
1) what keywords to bid for, and
2) how much to bid?

You can find the keywords for your site with the help of your knowledge and some software. Please read my article on how to do keyword research for your site for more information.

Before proceeding further let me tell you something about how pricing is done in major PPC search engines.

If you have gone to an auction you must have noticed how the price of the item being auctioned increases if more people want to buy that item. In other words increase in price of the item is directly proportional to number of bidders. If there are more bidders then the price of the item keeps rising until it reaches a point where there are no more bidders. The last person who had bid the highest gets the item.

Another important factor is the minimum bid price set for an item. Bidding starts from this price thus eliminating any chances of hoax by bidders.

Keyword prices are also decided by an auction. The system is similar to an auction, except that it’s not an open auction. You will never know how many bidders are there for that keyword, but the system gives you an idea of where you can expect your average ad position for a certain amount. Of course a minimum bid is set for every keyword. Google has a minimum bid of 1 cent.

The bottom line is your ad position will be decided on how much you are willing to pay for that keyword. Of course search engines such as Google take into consideration other factors also like the Quality Index of you ad, landing pages, historical click through rates etc before deciding your ad position.

Since there are many factors that decide your ad position, you almost always pay less than the maximum you are willing to pay per click.

Lets get back to the article question – how much to bid?

It depends on how much that keyword is worth to your business. If a keyword is giving you a lot of business, bid as high as possible to get most impressions and clicks. Bid average for keywords returning average ROI, and low for keywords giving low ROI.

See your data every month and review the situation. If you feel bids should be raised for certain keywords, do it. Similarly you may want to lower bids for the keywords that aren’t performing well.

If you have a huge list of keywords, it may become difficult to manage and may be highly time consuming. In such a case I advise you use a keyword bid management tool.

A keyword bid management tool is software that can keep track of all your campaigns and change bids of individual keywords automatically.

While a keyword bid management tool saves you a lot of time, still its advisable that you check your stats manually at least once a week. This will help you to know what exactly is happening to your keywords and campaigns.

Remember, when you do PPC, the most important factor for you should be your return on investment since you are paying per click.

Don’t bid so high that you get a negative ROI, and don’t bid so low that you get low quality and less visitors.

Bid rationally.