Why factorization is important to an account manager’s mindset
Account managers working with paid search probably encounter many troubles and worries during their daily optimization cycles. This article was written to take a little bit of weight off their shoulders.
I’m an avid reader of pretty much any genre of books ranging from Yuka Murayama’s love stories to Clausewitz’ “on War”, and I have the bad habit of buying lots of them whenever I find something that catches my attention.
One day I got my hands on a book about industry specific topics like the Toyota Production System and Six Sigma and it crossed my mind that maybe PPC and the manufacturing industry could, in some sense, work in quite the same way. I mean, and even if they didn’t, it would probably still be possible to apply the aforementioned methods to PPC. Like the modern economist Joseph Alois Schumpeter said, innovation comes from new combinations of already existing things.
※This is a translation of the this article.
Identifying the Bottleneck
Here’s a question. If a couple of children are walking in line, which of them do you think is the pacemaker?
The correct answer is neither the first nor the last, but the slowest.
One more question. When we have a chain, what is actually determining its strength? The material? Or even the atoms themselves? Neither of them.
The answer here is “the weakest link”. Because when the weakest link breaks, then the whole chain falls apart.
What I’m trying to say here is that if we are able to quickly identify where the bottleneck is and fix the issue, then we are able to minimize a great deal of our problems. And to remain with the example of the chain, this is what it will keep it more stable.
Subsequently fixing one bottleneck that slows down the workflow and process after another is an essential method of improvement in the manufacturing industry. To accomplish this, you will have to be able to quickly spot the bottleneck and its determining factors, and then build a hypothesis on which you base your improvement measures. To gradually widen the bottleneck, it is also important here to always question and verify your results.
The ability to identify such a bottleneck in a very short period of time is, in my opinion, what definitely separates a great professional from the rest. That’s something that still holds true today and even applies to newer technologies which didn’t exist until a couple of years ago.
In terms of PPC, a bottleneck could be basically anything that is having a negative impact on your account’s performance, i.e. it can be found on campaign-, ad group-, keyword- and sometimes placement-level.
Fixing the bottleneck
The idea of factorization can help you to fix almost any issue you can think of. Find out which factors are influencing your current situation first, and then implement your optimization measures. Because to solve a certain problem like, for instance, a rise in your keyword’s CPA, you will have to know what the components of the CPA are.
CPA = CPC (Cost per Click) ÷ CR (Conversion Rate)
According to the above formula, CPA consists of CPC and CR, therefore you could either try to lower the CPC or raise the CR to improve your CPA. However, since the CR is highly dependent on the actual website structure, the fastest option in most cases would be to lower the CPC. And that’s the point when factorization comes in handy again.
Actual CPC = (Ad rank of Ad below yours/ Your Quality Score) + smallest unit of currency (e.g. 0.01$)
Understanding how your actual click price is determined, is not that simple. By looking at the above formula, we can see that the only factor we can influence by ourselves here is the Quality Score, since a competitor’s Ad rank is nothing we can do about. Of course it is also possible to reduce your Max CPC bid to lower your actual CPC, but as this will very likely have a negative impact on your position, which again might be detrimental to your click traffic, we shouldn’t consider this option too soon.
So with that said, the smartest way here would be raising your Quality Score. And since the Quality Score again consists of several components (Factorization once more!) the most practical and effective choices here would be trying to raise your ad’s CTR or re-grouping your keywords into new ad groups for more relevance.
Understanding factorized structures
What is influenced the most when one factor becomes bigger (or smaller)? Where do you have to tweak for the most impact? Having a constant awareness of such correlating factors is an essential skill for any account manager running PPC campaigns.
The physicist Richard P. Feynman, who is widely renowned for path integral formulation and for visualizing the reactions of subatomic particles (the “Feynman Diagram”) once said, that it is a waste of time dealing with problems for which you won’t be able to have a solution. And his approach of only focusing on things you can actually influence is in fact capable of relieving the strain not only in terms of PPC too, but in regard to all sorts of tasks.
I have had many opportunities to visit places all over the country, where I have been asked for advice, and in more than 95% of the cases the problem could have been solved easily if the method of factorizing the issue had been applied.
Without knowing the rules and mechanics, you’re not even ready to start.
Those who have already visited my seminars and workshops might be familiar with the above phrase, but it is one I tell them every single time, and it shares the same important message with this article.
When understanding the concept of factorization and apply it to PPC, you’ll be able to quickly identify and fix the weakest link in your account and make optimization far smoother than before. Also keep in mind that you should analyze the issue from top to bottom.
And one more thing. If you are really willing to improve your PPC skills, it’s better to not limit your reading to PPC or ad technology related topics exclusively, but also think out of the box and expand your knowledge on the countless great methods that were established by the great minds of any field, because you can learn a lot from them even in regard to today’s marketing.
Translated by Jan Hugendick