When you are optimizing your bids, you should test how adjusting your bids and changes in your ad ranking affect your return-on-investment (ROI). Below, we cover a few tools and tips that can help you measure these results so you can make the best decisions for your campaigns.
AdWords Keyword Positions report from Google Analytics: If your AdWords account is linked to a Google Analytics account, the easiest and most effective way to optimize your bids is to use Google Analytics. (You can find out how to link the two accounts here.) You can use the Google Analytics Keyword Positions report in the Traffic Sources section to see where your AdWords ads appear on Google search results pages as well as in which position your ad performs best at in terms of total number of visits, conversion rates, etc. To access this report, sign in to your Analytics account, then go to Traffic Sources > AdWords > Keyword Positions. Positions T1 through T3 mean your ad was promoted to the top of the search results page. Positions 1 through 8 indicate placement or location in the right-hand column of ads on the first page, with 1 being the top position, and so on.
You might learn from this report that your ad actually converts better when it is at a lower position than a higher position and you may want to consider adjusting your bid to achieve the best performing position. However, if you do decide to increase or decrease your bids, you should still check back in a week or two to make sure that your keyword is performing similarly since changing its average position.
If you wish to automate the process of testing and adjusting bids, you can use the AdWords Keyword Positions report in conjunction with the Position Preference feature within AdWords to actually optimize your ad's position. With the Position Preference feature, you can select a specific position as a target. If you have determined that you achieve highest ROI with positions 3 through 4, for example, you can set your position preference to these positions. The system will then try to show your ad in positions 3 through 4 by increasing or lowering its bid. You should keep in mind though your changes may improve the ROI of your campaign because your ads are converting well at a lower cost, it could decrease the total amount of traffic to your site if you've specified that you'd like your ad to be in a lower position on the page. Be sure to check out tips in our Help Center on choosing settings and pricing for Position Preference.
If you use Analytics, you can check out more ROI tips from the Google Analytics Conversion University.