How Does Adwords Work?

Adwords is not a straight bidding auction. You can be the highest bidder for a keyword, yet, not get the top spot. The position your ad appears in is determined by two factors: your bid and the quality of your ad. The quality of your ad is called Quality Score by Google. There are many factors involved in calculating the QS, which I’ll discuss later, but for our purposes at the moment, let’s assume that it is your click rate. In fact, your ad’s CTR is responsible for 65% of your QS so that’s not far from the truth. Let’s take five advertisers, their bid in cents, their CTR and resulting ad rank:

Advertiser Bid               CTR Ad Rank

A1      $0.30                  6.7      201.0
A2      $0.28                  5.5      154.0
A3      $0.25                  5.4      135.0
A4      $0.25                  4.9      122.5
A5      $0.20                  5.1      102.0

The two factors, bid and CTR, are multiplied together which results in a number called the ad rank. If you have a CTR of 4.3% and bidding $0.25, your ad rank is 107.5 (4.3 times 25). In order for someone to be placed higher than you, their ad rank calculation would have to be more than 107.5 and can be achieved by increasing their bid or increasing their click rate. If their CTR is only 2%, their bid needs to be at least 54 cents. However, if their CTR was 5%, they only need to bid 22 cents to be ranked higher and only 16 cents if it was 7%.

In other words, Google rewards advertisers for creating good quality ads (read: high click rates) It is therefore best to get higher click rates as much as possible since your bid can remain the same or be lowered to get the same ad ranking you did before, not to mention getting more traffic for the same price. In fact, as we will see next, your actual cost will go down. It is therefore very important to understand the ranking system. Sure, you can always increase your bid to achieve a higher ranking and (possibly) better results. But smart advertisers know they can achieve those same results at lower costs simply by improving their ads. Continue reading

PPC Terms and Definitions

There are a few more terms used in Adwords and PPC in general that you should all be familiar with. I use them in this report a lot and I assume you know what they mean. If not, this section is where you will get definitions. Content Network. All sites that display Adwords ads (signed up to the Adsense program to generate revenues), are part of the content network. Other PPC search engines use the same or very similar term. Conversion. Typically, a conversion is any time that a visitor to your site buys something. However, a conversion could be anything you want to track and not necessarily a purchase. You may want to track downloads of a free document or software which may not involve a monetary exchange or sign ups to a free newsletter.

CPC is cost per click. This term can cause some confusion because Adwords for example uses it to mean your bid as well as your average cost incurred for each click. Others still use the term when they really mean PPC (they use it to differentiate it from CPM which means cost per thousand). For our purposes, it means only one thing: the average cost you pay for each click. Continue reading

What is Adwords?

Let’s start at the beginning with what search engine marketing is. The term is pretty much self-explanatory, it is using search engines to promote (also called advertising and marketing) your business, more specifically, your web site which is the online part of your business. Since search engine marketing is so long to type, you will more likely see its abbreviation, SEM. When spoken, each letter in SEM is pronounced individually and not as a word that sounds like “same”.

Also, don’t confuse SEM with affiliate marketing, which is something totally different. Affiliate marketing is simply promoting other people’s products (referring those products) in exchange for a commission when those referrals buy the product. Most affiliate marketers make use of SEM to promote those products or generate traffic to their site.

Why use search engines? Since most people find web sites by going to search engines first, unless they already know the name of the site, it makes perfect sense to use and leverage search engines to help people find your site.

SEM is the umbrella term for the activities in advertising your site. There are two main activities in doing this. One is search engine optimization. SEO, which is the term most commonly used and understood by all experienced search engine marketers, is simply trying to get the search engines to rank a page as high as possible for particular keywords. Keywords are the terms people type in search engines when looking for sites. When typing in “golden bird cage”, they naturally expect to be shown results, a list of sites related to that subject. If you sell golden bird cages, you naturally want to be listed, preferably on the first page and the higher on the page the better so that you can be seen by the searcher so that he sees and clicks on your listing. Continue reading