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Google AdWords
How Smart Choices Can Get You Top Placement For Less!
By Esoos Bobnar
www.searchenginehelp.com
Originally Published: January 2005
The past few years have witnessed the morphing of search engine optimization (SEO) into search engine marketing (SEM). And, as you are undoubtedly aware, SEM is a multi-faceted endeavor that demands careful integration of online marketing strategies. Today's astute SE marketer knows that page optimization, inbound linking strategies, and paid placements all dovetail together to form the winning combinations that drive traffic to sites that generate profits.
Of course, one of the cornerstones of SEM is Google's AdWords Program. However, unlike traditional pay-per-click advertising where the top placement is awarded to the top bidder, AdWords uses a formula that allows the underdog to triumph over advertising behemoths who might otherwise just buy the top ranking. On AdWords, one can rise to the top of the listings with a lesser bid by simply offering a more compelling ad that motivates visitors to "click" more often.
Perhaps you already know all that - but, what you may not already know are the various ways to beat the competition by making some lesser known, but very smart, choices within your AdWords setup
and
your
keyword selections.
How Smart Choices Can Get You Top Placement For Less!
Unlike traditional pay-per-click engines, Google bases its ad ranking formula around two values - the cost per click (CPC) and the click-thru rate (CTR). Your CPC is what you pay every time someone clicks your ad. This fee is set according to the maximum amount you have agreed to pay for each click and typically reflects the competitiveness of search queries you're bidding on. If no one else is bidding on the same search queries, then your CPC would only be the $0.05 per click minimum fee. The opposite is also true. Popular search queries are more competitive and therefore bid considerably higher. Such competitiveness can substantially increase the CPC it takes to become the top bidder.
Your CTR indicates the percentage of people who actually click on your ad as compared to the number of people who see your ad. Each time your ad is seen, that's called an impression. If your ad gets 100 impressions and one person clicks, then your CTR is 1%.
The method Google uses to determine the numerical position of your ad in relation to your competitors' ads is determined by the following formula:
|
your CPC
|
X
|
your ad's CTR
|
=
|
your ad's position index (PI)
|
To see how this works, imagine you're bidding on the search query (keyword/keyphrase)
cell phones. Your company, CheapCells, is competing for this same keyphrase with two other companies, BestCells and TopCells. You've decided that you will bid a maximum of $0.09 per click for this keyphrase. For every 100 people who see your ad, 3 are clicking on it, so you have a 3% CTR. Let's see how your position index (PI) compares to that of your competitors:
|
CheapCells:
|
$0.09 CPC
|
X
|
3% CTR
|
=
|
0.27 PI
|
|
BestCells:
|
$0.08 CPC
|
X
|
5% CTR
|
=
|
0.40 PI
|
|
TopCells:
|
$0.10 CPC
|
X
|
2.7% CTR
|
=
|
0.27 PI
|
Here you can see that, even though BestCells only has a CPC of $0.08, they will still rank higher than you because their 5% CTR gives them a higher position index. This is the great thing about AdWords - lower bids can still outrank higher bids if they can motivate more people to click their ad.
What about TopCells? Even though they've bid a higher CPC, their lower CTR means that you both end up with the same position index. In this case, Google uses the advertiser's maximum bid - the top price you're willing to pay for a click - to determine who will rank higher. Since AdWords is based on an automatic bidding process, if someone obtains a higher PI than you - either through increasing their CPC or by achieving a higher CTR - Google will increase your CPC up to your maximum bid until your PI index is greater than theirs. This continues until you've either obtained top ranking or you've reached your maximum bid.
In this example, let's say that you decide to increase your maximum bid to $0.12, while TopCells increases theirs to $0.15. In the previous scenario, you both had a 0.27 PI. In this situation, Google will engage in an automatic bidding war until one of you emerges victorious. Assuming your CTR remains the same, Google will increase each of your CPCs until one of you reaches your max bid. When this happens, the following situation emerges:
|
CheapCells:
|
$0.12 CPC
|
X
|
3% CTR
|
=
|
0.36 PI
|
|
BestCells:
|
$0.08 CPC
|
X
|
5% CTR
|
=
|
0.40 PI
|
|
TopCells:
|
$0.12 CPC
|
X
|
2.7% CTR
|
=
|
0.32 PI
|
At this point, your company, CheapCells, has maxed out. The only way to increase your PI now is to increase your max bid or get a higher CTR (generally by writing more effective ad copy that draws more clicks). Notice that BestCells is still ranking in position one, with a PI of 0.40, even though their CPC is far lower than anyone else's. This is because they have written compelling ad copy that is attracting more clicks giving them the best of both worlds - more clicks for less money (Hint: perhaps you should emulate what you can from BestCell's ad copy to increase your own CTR).
TopCells, on the other hand, still has room to grow, since they set their max bid at $0.15. AdWords' automatic bidding process continues to increase TopCells' CPC until they have a higher PI than BestCells. That happens when TopCells reaches their maximum bid of $0.15:
|
CheapCells:
|
$0.12 CPC
|
X
|
3% CTR
|
=
|
0.36 PI
|
|
BestCells:
|
$0.08 CPC
|
X
|
5% CTR
|
=
|
0.40 PI
|
|
TopCells:
|
$0.15 CPC
|
X
|
2.7% CTR
|
=
|
0.41 PI
|
This puts TopCells in position one, placing its ad above all other competitors' ads. But notice that TopCells is paying nearly twice as much per click as their next closest competitor, BestCells. And, BestCells could easily move TopCells out of the top position by increasing their max bid by just one cent.
This underscores the importance of CTR when running an AdWords campaign. AdWords allows you to remain competitive - even with a smaller budget - as long as your ads attract more clicks. And you can do that by making your ad copy more compelling and more relevant to the keywords that you're competing for.
Of course, a company with a huge advertising budget can still keep increasing their max bid to stay ahead of you, but at some point this becomes unprofitable for even the largest company. Not to say that a big company won't continue to pay large CPCs, but Google does tend to level the playing field by rewarding
relevance
and
good ad copy, as opposed to just deep pocketbooks.
These examples illustrate that you can compete successfully, even in extremely competitive areas, by being smart and focusing on
making your keywords and ad copy relevant to your customers' searches.
Continued:
Choosing Your Keywords >>>
Editor's Note:
See also:
Successful Advertising with Google AdWords
eBook
Copyright 2005 by Planet Ocean, reprinted with permission.
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