This is a disciplined methodology to ensure we are systemically improving the profitability of our customers online advertising investment. It's a methodology that we apply to sophisticated advertisers to earn the maximum profit for them that we possibly can. It's a five step methodology, which I will breakdown in greater detail throughout this article.

Step 1: Identify your ad waste

The first step in the process is to measure the profitability of each of your campaigns and keywords, and identify those keywords, ads and campaigns that are unprofitable. Ad waste can mean one of two things: either the very obvious, "I'm losing money. It's not profitable," or it can mean marginally profitable ads.

What needs to be determined here is what to do with money going into that marginally profitable ad. You could shut those ads off and free up those dollars to apply somewhere else where you are earning more profit. In order to allocate your budget properly, you want a tool that can help you identify this ad waste.

Step 2: Once you identify ad waste across a statistically sound sample, the next step is to eliminate your ad waste

By knowing which ads are unprofitable or marginally profitable, you can easily identify which ads to shut off. This frees up a portion of your ad budget that typically ranges between 25 and 35 percent across our client base, to either pocket or reinvest wisely. Once you have eliminated all unprofitable ads, you see the red ad spend going down and the gap (or margin) between profitability and ad spend beginning to increase.

Step 3: Buy the maximum clicks that are available

Rather than simply pocketing the savings from Step 2, sophisticated marketers want to spend as much money as they can on profitable advertising. These marketers do not limit their budgets to a fixed number. Instead, when they know that a dollar invested in online advertising produces more than a dollar out in incremental profit, they want to buy as much advertising inventory (e.g. clicks) as they possibly can on the ads they know work.

Therefore, reinvesting the budget saved by eliminating ad waste (and possibly investing more) into profitable ads results in an increase in your ad spend line. Your profit line, however, increases even more, further increasing the gap (or margin) between profit and ad spend.

Step 4: When they can buy no more clicks, they can add additional ad sources

Once you have bought the entire profitable ad inventory available on a given online advertising source, the next step is to try additional ad sources. Once proven to be profitable based on a statistically sound sample size, you should then repeat Step 3 for your new source.

Sophisticated marketers start with sources they are already familiar with and have been profitable historically for them. For example, if you are already advertising on a comparison shopping engine and it has proven to be profitable, but can't buy anymore traffic from the engine, you should seriously consider adding another shopping engine.

Step 5: Optimize your Web site (or I should say optimize your business)

This step should not come at the end of the methodology, but rather it should occur in parallel with each step of the methodology as data and customer feedback present themselves. The point here is that even if you have added every ad source available and bought every profitable ad you can, you still want to continually improve the conversion rates on your site and thereby increase your profit.

Once you have exhausted all of your paid advertising options, there are really only two strategies that will allow you to increase your profits further. One is to get more organic traffic to your Web site by focusing on your search engine optimization (SEO) efforts. The second is to work on your business itself. Make the buying experience better for your customers, offer more products and implement new aspects to your site.

Obviously, this is something that you should be doing continuously, but if you do reach the end of these 5 steps (which theoretically, most companies never will), you'll have added more ad sources and bought more clicks, but it still comes down to your site and your product offering.