PPC Diminishing Returns

Paid search is subject to the law of diminishing marginal returns where the last dollar spent has a lower ROI than the first dollar spent because the most cost-effective keywords are always purchased first.

There are two constraints at work here: budget and search volume. With a limited budget you will bid on the highest returning ROI keywords first. When you have a high impression share on those keywords and more budget, you’ll start expanding into different keywords – inevitably you start bidding on keywords that have lower ROI. Revenue goes up but ROI goes down.

The challenge is to decide which is more important – more revenue or or more margin dollars. You can’t have both.

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