Why is it important to know a little bit about your competitors? Actually, you should know everything you could possibly know about your competitors and then some to be honest with you. You should know what they are selling and how it is similar or different from your own product. You should know what their major marketing plan is and how you can beat them to it. You should know where they get the bulk of their traffic and then figure out how you can redirect that traffic to your own site. And, you should know what keywords they bid on in their PPC bidding campaigns and what their own maximum cost per click is.
Knowing what the CPC of all of your competitors together will allow you to figure the average cost per click amount so that you can adjust your bid amounts accordingly. The average cost per click is simple enough to find but very important. You remember how to do averages from high school math class, right? Its the same process. Take the bids from the five nearest competitors and add them up. Take that number and divide by five. Voila, you have found the average cost per click. Now what you do with this information is entirely up to you. Your best bet is to use it to define your own maximum cost per click for each campaign that you are engaged in, at least until you have found out how your campaign is doing with revenue, profit margins or until you know your exact conversion rate.
Using the average cost per click number to base your bidding is probably best done in the early stages of a campaign, or in the early stages of an online career because it allows you to fall somewhere in the middle instead of making the bold move that could cost you dearly if it does not pan out. Until you have learned a little more about how online marketing works or until you know the exact figures of your own site it is best to keep your risks to a minimum. Once you know the other numbers though you can abandon using the average cost per click method and go with an entirely different bidding strategy, if you so desire.
For instance, you could base your bidding strategy on your generated revenue. Knowing how much profit is left over and what percentage of that profit will be used to provide additional campaigns will define your maximum cost per click and allow you to spend either more or less than what you were putting out with the average cost per click method.
Regardless of what method of bidding you decide to use, do not make the mistakes that are common to the new marketer. Do not think you automatically need to bid for number one because the expense is generally not worth it. Do not think you must bid the same as everyone else – in fact, you should try to take advantage of the bidding gaps that are created by the bigger companies.