How to Avoid Going Broke with Google AdWords

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If you’re selling anything online (or off-line), you probably know about Google AdWords and how much its ads can help you sell your stuff. However, you are also probably concerned about how much those ads can end up costing you if you’re not careful.

How can you run a successful AdWords ad campaign without going broke? Read on.

How to Calculate and Understand Google Ad Rank

What is Google Ad Rank? It’s an ad serving equation in Google AdWords that determines where your ad shows up and how much you’ll pay per click. Your ad rank is essentially the position which your ad holds on the search engine results page (SERP).

What are the variables that go into determining Ad Rank? There are two: Quality Score (QS) and Cost Per Click (CPC) bid. These two variables determine Ad Rank as follows:

QS x CPC = Ad Rank

For example, if you create an ad with a QS of 2 and pay a CPC of $1, you receive an Ad Rank of 2. However, a competitor’s ad with a QS of 8 and a CPC of $0.50 receives an Ad Rank of 4. Your competitor’s higher rank means that his ad would be served above yours on the SERP.

To increase your own ad’s rank, you might choose to pay more money for each ad click- say, $3 per click. That immediately raises your Ad Rank to 6 and places it above your competitor’s. But now you’re paying $3 instead of $1 per click. That’s a lot of money to spend on an ad click that may not even result in a product sale.

It also takes a lot more money to run your ad campaign if your ad’s QS is really low. Why? Because Google calculates your ad’s final CPC based on the rank of the competitor below you. Here is the equation:

CPC = Ad Rank of competing ad below yours/Your QS + $0.01

So, if you have a competitor with a really good rank while your own QS is low, you’ll end up paying a lot of money to show your ad. Alternately, if you set your maximum bid (which is the maximum amount of money you’re willing to pay to show your ad) too low and your ad really bites, you won’t be shown at all. Check out the chart below for some examples of final advertising CPCs. Also, can you correctly point out which advertiser won’t even be displayed?

Ad Rank chart

 

If you picked the fourth advertiser as not being displayed at all, you’re right!

A tale of two chocolatiers

A better approach is to improve your ad’s Quality Score, which is accomplished by picking better and more relevant keywords. For example, if your website sells all kinds of confections and you create an ad centered on the keyword “candy”, Google may or may not serve your ad to a user who inputs the search term “chocolate bars,” especially if a competing ad centers on the keyword phrase “dark chocolate.”

However, let’s say you revamp your AdWords campaign to include several different ads that are keyword-optimized for different chocolate products including dark chocolate bars, chocolate-covered fruit and milk chocolate fudge. Let’s say you also generate sales pages that feature each chocolate product and use the same keyword phrases as your revamped ads. What happens?

Your ad QS increases, resulting in rank increases for your ads. At this point, even if you choose to lower your CPC bid in order to save money, you’ll still outrank your competitor’s ads because your ads are simply more relevant to what users are searching for (and hopefully buying).

Seems simple enough, right? That’s probably why Google recently decided to throw a wrench into Ad Rank workings.

The Rise of Ad Extensions and Formats

Recently, Google added yet another two variables into its Ad Rank equation: Ad Extensions (e.g., phone number, location, product page) and Formats (e.g., mobile, laptop). Let’s explore each variable separately.

Ad Extensions

An AdWords ad traditionally holds three short lines of text followed by a website address. Here’s a classic example:

bustagutchocolates

Lately, Google has enabled webmasters to add extensions to its ads. These extensions can consist of additional links but may also include phone numbers, addresses and product reviews and photos. There are currently eight types of ad extensions available, and Google promises to make even more available soon. Here is one example of a Google ad containing sitelinks extensions (shown in the red box):

sitelinks

Google really wants advertisers to use sitelinks- so much so, in fact, that it’s altering the Ad Rank equation to include ad extensions. So, if you can figure out how to add more links into your ad, even given the same QS and CPC, your ad will actually outrank that of your competitor. In other words, you need to start figuring out how to use sitelinks or even your high QS ads will eventually lose their premier position on the SERPs. Unless you want to shell out more money, of course.

Ad Formats

With the rise of mobile devices, many AdWords ads are being displayed to users who are on-the-go. Such users are not be too terribly interested in visiting your site’s product page and perusing your huge photos, but they are probably very interested in seeing if your business has a physical address or phone number.

Therefore, if one of your ads contains a location or call extension, it will be served first on users’ mobile devices even if that ad has a lower overall rank than a competitor’s ad that contains no location or call extension. Therefore, you need to start thinking about including mobile-friendly ad extensions.

How do ad extensions fit into the Ad Rank equation?

Unfortunately, no one really knows. However, what is known is that Google will penalize ads that don’t have extensions if competing ads do. And the last thing you need is a lower Ad Rank, especially when including ad extensions actually enhances your ad with useful information. So, get crackin’ on creating those extensions.

In the end, it’s all about the Google

What does Google hope to accomplish by rewarding advertisers who create high QS and bling (i.e., sitelinks)-enabled AdWords ads? In a nutshell, more money. Google is not out to personally get you for creating poorly optimized or irrelevant ads.

Nope- it just wants Web users to take the least amount of time perusing products and more time buying them. And clicking on ads in the process. Because ad-clicking is what makes Google the big bucks. If you help Google make money, Google will help you by lowering your advertising costs. It’s that simple.

Photo credit by Lynda Giddens

3 Comments

  1. This is a very informative blog. It has given me tools to get back into affiliate marketing.

    Reply
  2. Thanks for this helpful breakdown! Your last point is a great summary – when in doubt, remember that Google’s goal is, of course, to make the big bucks.

    Reply
  3. It’s like an insider’s scoop! Thanks for demystifying yet another Google-ism.

    Reply

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