by John Eberhard

One very useful aspect of pay per click advertising on Google AdWords is the ability to do geo-targeting, or having your ads only appear in certain geographical areas that you select.

In other words, you can select to have your ads appear to viewers in the entire United States. Or you can have them appear only in one state, or in a bunch of select states. Or you can select a specific metro area, such as the Los Angeles metro area, or Chicago, Boston or Dallas. You can even select smaller cities or towns, certain zip codes, or you can even draw your selected area on a map.

This is vital if you are a local business such as a brick and mortar store and can only service people in a certain area. You don’t want to be paying for people to click through to your site in Keokuk if you own a local store in Pasadena.

Many businesses will want to target only a certain portion of the U.S.

But here’s another aspect of geo-targeting that is useful and requires a bit of explanation. Last year I was running a pay per click campaign for a client, and at first he wanted the campaign to be run all across the U.S. We were getting great response, with a cost per clickthrough of under $1.00, and a cost per lead of $8.00.

But the client who was located in California, was finding it hard to close people outside of the state, so he told us to cut the campaign back to just California. So we did, and the average cost per click jumped up to several dollars, and the cost per lead jumped up to $40.

Now $40 per lead today for most markets is still pretty good. Most lead generation campaigns have a cost per lead that runs anywhere from $60 to $120, though this varies quite a bit by industry.

But this experience highlighted an important aspect of pay per click, which is that the average cost you will pay for your clickthroughs is going to be significantly affected by the amount of competition in your specific market, and by market in this case I mean the city or metro area.

For example, if you are a home improvement company delivering services to local homeowners in Los Angeles, chances are that you are going to have more competing companies advertising on Google AdWords, than you would if you were a home improvement company servicing local homeowners in Wichita.

And the more competing companies there are advertising on Google AdWords in your market and competing for the same keywords that you are targeting, in general the higher your costs will be for clickthroughs. The cost you pay for a clickthrough is all based on bids. And so in general the more competing companies, the more those competitors will drive up the bid costs.

Now you can set your bid at whatever you want, but if your bid is significantly lower than the competitors in your industry in your market, you will find that your ad appears at the bottom of the stack, or even worse, on page two of the results. And in those cases, you will not get too many clickthroughs. No one’s going to be coming to your site.

In the case of my client mentioned above, when we started the campaign nationally, he was getting a lot of clickthroughs and a lot of leads in cheaper markets, where there wasn’t a lot of competition for his keywords. But when we cut it back to just California, he was now in mainly several pretty large markets: Los Angeles, San Francisco, and San Diego. So his bid costs and cost per lead went up.

So how can you use this data? First of all if you are in a highly competitive industry in a large metro area, you know your bid costs are going to be higher. How high? Well you can start a Google AdWords account and use the Traffic Estimator tool and that will give you an idea. It all depends on the number of competitors.

But here is another interesting way to use this. If you sell a product or service that can be delivered nationally, and you want to start a pay per click advertising campaign but need to keep your costs down, you can start your campaign only in selective smaller metro areas. In other words, stay away from Los Angeles, Chicago and New York, but start out with smaller markets. The competition in those markets will likely be less and your costs will be lower.