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Welcome back to our series on AdWords Optimization Tips. A number of our readers have written in to ask about managing and optimizing their bids for best performance, so that is the topic we'll address today. Please note that some of today's tips are directed towards readers who also use Google Analytics, while others are general tips for all AdWords users.

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.

Traffic Estimator Tool

If you don't use Google Analytics, you can still adjust and optimize your bids using the Traffic Estimator Tool. For each keyword you select, you will be able to see the minimum bid, maximum CPC, the search volume bar, Estimated Ad Positions, and other information. The most relevant column for the purposes of testing ad ranking against ROI is the Estimated Ad Positions information. The Estimated Ad Positions column shows your ad's estimated position on each of your keywords with your current maximum CPC. If you're unhappy with the estimated ad position, enter a new maximum CPC in the Maximum CPC field and click 'Get New Estimates.' You can follow a step-by-step guide on how to use Traffic Estimator here.

Testing again and again

Lastly, you can always measure results without any special tools by simply looking at your conversions and your position, and then manually adjusting your bids until you achieve your optimal ROI. We want to emphasize that bidding higher CPCs for the keywords that you want isn't always what's best for your ROI. Instead, we recommend that you find out where the keyword is converting the best for the optimal cost. In this experimentation process, you may lower your bid too much and see conversions go down significantly or you may raise it too much and see no changes in conversions. Through testing and measuring, you should be able find the sweet spot where you are most effectively reaching your advertising goals.

For a more comprehensive range of topics related to managing bids, we recommend that you visit the Managing Cost-Per-Click and 'How do I strategically maximize my ROI?' topics in the Help Center. And you may also want to read more about the Conversion Optimizer beta.

As always, we want to know about the optimization tips you're interested in. Please email us to let us know and you may see your question answered in a future post.

Posted by Feng, Inside AdWords crew