Don't Bid for Top Placement
When bidding on keywords in AdWords, Overture, or similar search advertising campaigns, it may seem like you should bid for the top position. There are several problems with this approach:
- Top ads receive more unqualified clicks.
- Top bids are often inflated.
- You may overbid relative to profit potential.
The biggest problem with the top spot is that there are many, many users who click on ads without reading them, and they are most likely to do so for the top ads. They may see words in the ad that picque their interest, or they may just click on the top results assuming that they're a good starting point. Regardless of the reason some users behave this way, they are unqualified leads that cost you money.
For virtually every competitive keyword, there are companies and individuals that have to be number one at virtually any cost. Several such bidders can drive up top bids well beyond the breakeven point as each tries to outbid the other. In some cases, the bids of the top two or three Overture positions are several times higher than bids for positions immediately below them.
Bid inflation is more common on Overture than on AdWords because the latter doesn't rely solely upon bids to determine ranking, and they don't show competitive bids. Overture will show you keyword bids, and it's not hard to find examples of bid inflation.
Overbidding Relative to Profit
The real issue isn't whether or not there are spurious clicks or overly zealous competitors, it's Return On Ad Spending (ROAS). If your bids are too high, your click costs could overwhelm your profit margin on the resulting sales.
Aim to Be #3
For the above-cited reasons, the first position can cost more than it's worth. However, your ads shouldn't be so far down the list that people never click on them, and they should be high enough that they are carried on search partner sites (if you have this enabled). The second and third positions are good targets because you avoid much the unqualified clicking and battling for the top spot while maintaining reasonable visiblity.