Should You Use Enhanced CPC in Your AdWords Campaigns?

Lot’s of people use enhanced CPC…

But is Enhanced CPC a wise strategy? By the end of this post, you will know the good and the bad.

Some people think so because it’s a type of marketing automation. Google manages your bids so you don’t have to.

On the other hand, there are marketers who think that it’s a dangerous option because it turns the whole bidding process over to an algorithm owned by a company that wants to get as much money from you as possible.

In this article, we’ll go over Enhanced CPC and explains its pros and cons.

What Is Enhanced CPC?

Enhanced CPC stands for Enhanced Cost-per-Click. It’s designed to “help you get more conversions.”

Obviously, more conversions is a good thing. But not if it comes at a price so high that you don’t have a positive return.

Enhanced CPC works by automatically adjusting your bids for clicks that are likely to land you sales.

In other words, if AdWords determines that you’re bidding too low for a well-performing ad, it will up the bid so that you get more conversions. It does that by raising your max CPC bid.

You read that right. AdWords will increase your max bid so that you can earn more sales.

Does that sound scary? It should.

There’s another side to that coin, though. For ads that are less likely to convert, AdWords will lower the bids so that you don’t waste money.

In fact, the bidding can drop all the way down to $0 for underperforming ads.

Smart Bidding

So how, exactly, does AdWords determine whether or not it should raise or lower your bid? It uses a form of Smart Bidding that relies on market signals, such as the browser location, user demographics, and time of day.

That’s only part of the story. Google won’t reveal everything that it uses in its algorithm.

Before you can use Enhanced CPC, you need a history.

Before you can use Enhanced CPC, you need a history. That means you must have at least 15 conversions in your campaign.

Why? So that AdWords will have enough data to make adjustments to your bid. Otherwise, the system would simply be shooting in the dark.

Of course, you’ll also need to have conversion tracking turned. That’s how AdWords will determine which type of people are likely to convert.

Keep in mind: the larger the sample size, the more likely it is that AdWords will have accurate data. In this case, bigger really is better.

An Example of Using Enhanced CPC

Let’s consider an example. Suppose you’re selling tripods online and you’re running an AdWords campaign to appeal to professional photographers. You set your max bid to $1 per click and choose Enhanced CPC.

The AdWords algorithm notices an auction where your ad is likely to perform well. However, the minimum bid to qualify for that auction is $1.50 per click.

Since you’re using Enhanced CPC, AdWords will ignore your max bid of $1 per click and boot your bid up to $1.60 to ensure that your ad makes it into the rotation.

Your ad shows up, people click on it, and some of them buy your tripods.

Because of Enhanced CPC, you’ve just earned more revenue for your business.

The Rest of the Story

So AdWords jacked up your bid to $1.60 and earned you more sales. That’s a good thing, right?

Not necessarily.

You might have earned more revenue, but that doesn’t mean you’ve earned more profit. If your advertising costs go up 60% (the cost per click in this case), can your profit margins sustain that hit?

For many businesses, they can’t. That’s one of the downsides to Enhanced CPC.

Is Enhanced CPC Good for Customers?

For some newer businesses, though, the additional charge might be worth it. That’s because they’re acquiring customers who could generate a long-term revenue stream.

Think about it. If professional photographers visit your site, buy your tripods, and order more of them from your company over their professional careers, was that worth the additional charge?

For many businesses, yes. That’s a long-term outlook, though.

Also, if your company provides a great product with outstanding customer service, you can be sure that those photographers will tell others in their industry about your awesome tripods. You’ll earn even more sales.

So businesses with a healthy amount of working capital that are just starting out might find Enhanced CPC a great way to make a statement in their industry.

Can Established Companies Benefit from Enhanced CPC?

But what about established companies that are using online advertising to sell more products? Can they benefit from Enhanced CPC?

In some cases, yes. The general consensus among digital strategists, though, is that it’s best to use manual bidding.

Why? One word: control.

When you use manual bidding, you have more control over how much you spend every month. You can use your spreadsheet to run various “what if” scenarios and determine your profit margin.

It’s much more difficult to play “what if” with Enhanced CPC. That’s because you’re not sure what the AdWords algorithm is going to set for your max bid.

You could find that your advertising costs spiral out of control while you get very little (or nothing) in return.

Also, keep in mind that you can always test different bids to see where your sweet spot is. You don’t have to rely on an algorithm to find just the right bid.

Bottom line: if you’re unsure about Enhanced CPC and just getting started with AdWords, don’t use it. Go with manual bidding instead.

Enhanced CPC is Often Too Simplistic

There’s another reason why you might want to avoid Enhanced CPC. It makes marketing too easy.

“What does that mean?” you might be asking.

If you’re letting AdWords adjust your bids to land more customers, then you’re not targeting specific segments within your market. You’re just letting AdWords find you more clicks.

As a result, your sales could be much better if you were running tailor-made ads to specific groups of people in your target market.

For example: let’s say that female photographers who do a lot of food photography prefer your tripods more than anybody else.

Which of these advertising options do you think would be more effective at reaching that audience: 1) A generic ad to all photographers with Enhanced CPC or 2) An ad that appeals to female photographers who are into food photography.

Hopefully, you chose #2.

Unfortunately, though, lots of marketers let Enhanced CPC “punt” for them when it comes to good advertising. They place all their faith in the bidding mechanism and don’t look at their targeting practices.

Of course, you could also use option #2 above with Enhanced CPC. But keep in mind: your market segment is already very well defined and you know what you need to bid to stay competitive. If your overall Quality Score is great, you shouldn’t have any problem landing clicks and conversions with manual bidding.

Wrapping It Up Enhanced CPC

Enhanced CPC might seem like a great idea, but for most marketers it’s probably best to stick with manual bidding. There’s no “one size fits all” solution, though. Conduct your own experiments and see what works best for your brand.