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Calculate and Display the Optimum CPC in Kenshoo
With the help of Kenshoo's custom metrics feature, it's possible to have Kenshoo display the average break-even CPC, the average optimal CPC and a rough recommendation for adjusting the max CPC. Kenshoo will calculate and display these custom metrics for the profile as well as for each campaign, of course.
In order to implement these custom metrics correctly, you're going to need to know, at a minimum, your variable margin. See this article and this article for an in-depth discussion on calculating this figure.
You'll also need to make sure you're tracking conversion value with your Kenshoo Conversion Tracking script/pixel (Management > Profile Settings > Advanced > JS Tracking Script). For example:
[javascript]params[2]='val=50.00';[/javascript]
Break-Even CPC
Essentially, you calculate your break even CPC using the following formula.
[ConvRate] * [Rev/Conv] * [VariableMargin] = BreakEvenCPC
For example, suppose your Conversion Rate is 2%, your Revenue per Conversion is $50, and your Variable Margin is 40%.
2.00% * $50.00 * 40% = $0.40
In this case, your break-even CPC is $0.40.
Break-Even CPC Custom Metric
In Kenshoo Local, go to Management > Profile Settings > Custom Metrics > "Add."
Set the "Metric Name" to something like "Break Even CPC."
Customize the Variable Margin value (in this case, mine is set to 0.4) in the following formula.
[text]ConvRate*Rev/Conv*0.4[/text]
Then copy and paste the formula into the first "Formula" field.
Set "Calculating Total" to "Use the formula above."
Set the format to "Currency."
Check "Online Reports."
Click "Save."
Optimum CPC
Optimum CPC represents the CPC that will yield the absolute most profit possible given your budget, whatever it may be.
Your optimum CPC is quite simply half your break-even CPC. In other words...
[text]ConvRate*Rev/Conv*0.4/2[/text]
Recommended Bid Adjustment
The optimal CPC represents how much you should be paying in order to obtain maximum profit. Of course, you'll typically need to bid more than the CPC you want to pay. So, the real question is: how much should you bid in order to hit your most profitable CPC?
Here's a formula that will tell you whether you should increase or decrease your Max CPC and by how much.
[text](ConvRate*Rev/Conv*0.4/2/CPC)-1[/text]
Set this custom metric to display as a percent.
A result like 102.53% means that you'd want to increase your bid by 102.53%. In other words, multiply your bid by (1+1.0253)*[current bid]
A result like -13.63% means that you'd want to decrease your bid by 13.63%. In other words, (1-0.1363)*[current bid]
