PPC Myths – You NEED to rank in position #1 to be profitable

Debunking Commonly Held Myths about PPC Marketing – You NEED to rank in position #1 to be profitable

Having been a digital marketer for over seven years I’ve managed a fair few pay per click campaigns in my time, and run into quite few myths and misconceptions. This series of blogposts will highlight some of the most common misconceptions I regularly encounter, and why they are patently not true…

One of the most common is without question the belief that you NEED to rank in position #1 to run a profitable campaign. I’ve always found this one a bit of a head scratcher. Of course ranking in the top position can have several benefits for your paid search campaigns, primarily maximum visibility and reach, but there is a cost associated with such a ranking, and if it outweighs the revenue generation created by being No.1, it isn’t a profitable proposition for your business.

The volume of traffic generated by being the top ranking advert will be higher than if you rank in the lower ad positions, but equally so the cost of being the second, third and fourth and so on ranked adverts get progressively cheaper as you slip down the rankings. Furthermore, there is an argument to be made that a searcher clicking the third or fourth ranking ad is a more qualified click, as they have taken the time to scroll down the search engine results page (SERP), and then consciously choose your ad over the others. Both of these points fly in the face of the idea you need to be #1 to be profitable because it’s cheaper to rank lower, and those ads are likely to send more qualified traffic…

Understanding the profitability of your paid search marketing campaigns requires a good grasp of your cost per acquisition (CPA) and this will be effected by the cost per click (CPC) paid to drive traffic to your website. If your advert ranks #1 at a cost of £1 per click, and sends 100 people to your site each day, of which five users convert, your CPA would be £20. If your conversion point doesn’t have a value in excess of £20, then this would be an unprofitable advertising strategy. The below data looks at how your CPA could actually improve when your CPC and volume of clicks drop because your advert ranks lower, while your on-site conversion rate remains similar, therefore making ranking lower a more profitable strategy.

Ad Rank CPC (£) Clicks Cost (£) Conversions Conv% CPA (£)
1 1.00 100 100 5 5.0% 20.00
2 0.79 39 30.81 2 5.1% 15.41
3 0.66 17 11.22 1 5.9% 11.22

The caveat is of course the volume of sales, or your total revenue generated. Ranking in position 1 in this example generates five sales, which is 250% more revenue earned than in position 2 (only two sales), and 500% more than position 3 (one sale). And therein lies where the misconception is born. Your revenue or sales may be greater from ranking first, but not necessarily your profitability.

If you’re interested in further understanding how your keywords are performing in their respective ad positions it is possible to create a custom report in your Google Analytics profile that uses the dimension Ad Slot.

UPDATE: Since this blog was published Google has announced that it will be retire the ad position metric in late 2019. Instead Google will utilise four new ad position metrics to report on the percentage of impressions and impression share your ads received in the absolute top (the first ad at the very top of the page) and top of page (above the organic results) ad slots.

Alternatively, you can contact Ross Miles on 01202 559559 or [email protected] and arrange a free audit of your PPC account.