So what is the problem?

The problem is that Adwords is a competition between advertisers for clicks. Each individual advertiser is looking for the maximum number of clicks for the minimum cost. Essentially the whole system of AdWords is one massive game that obeys the rules of game theory.  And unfortunately a game does not guarantee a good outcome for its players – as Yale Professor Ben Polak states ‘rational choices can lead to outcomes that suck’.

To illustrate this imagine you are one of 40 retailers selling mp3 players on line. To make things simple let’s pretend that every one of the retailers makes €10 gross profit from a sales and each retailer converts 10% of visitors to a sale.  Over time what will the price of a click approach?

The answer is that the price of a click will approach one euro which equals the gross profit of the sale. The reason for this is that if the current price of a click is €0.98 there will still be someone who isn’t getting any clicks that is willing to pay €0.99 for a click in order to earn €0.01 because even a single cent is better than no cents.

This is obviously an outcome that ‘sucks’ for the players of the game as 99% of the gross profit from their sale goes to Google.  A much better outcome for the player would be if they all colluded and agreed to evenly distribute the clicks between them and pay Google €0.01 per click.

So in an evenly distributed competitive market the cost of advertising will approach the gross profit margin.

For small businesses and start-ups it’s even worse

The cost of AdWords will only approach the gross profit margin if all of the participants are playing with the same cards and are playing logically. This is obviously not the case. Different companies have different profit margins, different advertising copy, different conversion rates, and different Google quality scores and advertise under different keywords.

All of this combines to make the game very difficult to play and impossible to optimise.  The problem for small businesses & start-ups is that they frequently don’t have the business metrics in place to be to effectively tell what the price of a click is worth.

In the case of start-ups the product and business landscape is changing so rapidly it invalidates historic data. In the case of small non-IT companies they typically need to spend many times their initial AdWords budget simply to get their initial set of metrics.

Google’s simple and friendly interface exacerbates this in many ways. It is so easy to control and change your advertising variables that frequently companies don’t give a campaign enough time to draw any accurate conclusion. This leads to consistent and continual tweaking without real lessons being learned.

The danger for these businesses is that when they look at using Google AdWords that they take the wrong approach. Rather than asking ‘how much is a click worth to me?’, they ask ‘How much does a click cost’. The attraction of this approach is that it is much easier – you simply raise the cost per click until you are getting the number of clicks that you want.

This approach is terrible and in today’s competitive market place is almost certainly going to lose you money.

The reason for this is two-fold. Firstly, the word is full of suckers and AdWords is no exception. Take a look at your AdWords competition and ‘if you can’t see the sucker in the room …’

Every minute of the day some sucker signs up to Google Adwords with a €10K budget and bids up to first position without so much of a thought (frequently these are agents working on behalf of clients and on client instructions). They burn through their budget and don’t get a return and disappear, however no sooner than they’re gone they are replaced by another sucker. After all ‘there’s a sucker born every minute’.

Secondly, your competition is playing with a different deck to you. Maybe their conversion rate is double yours, maybe their gross profit is higher or maybe they’re a large company with plenty of capital that are deliberately over spending in order to starve you of traffic.

The point is that when you are competing against suckers and sensible players who are playing with different decks then you are mad to be judging what you should pay on the basis of what they are paying.

In Summary

Google AdWords is now a mature, competitive marketplace for advertising. It is no longer the “new medium” it was four years ago where advertising was so cheap pretty much anyone could make money from it. Now to make money from AdWords you need to be a savvy marketeer in complete control of your metrics.  If you are not then you are either going to be underpaying or overpaying for your click. If you are chasing the market the chances are that you are overpaying and losing money.

The corollary to this is also true. If you know your metrics and are willing to put the time and management attention into Google AdWords then it can be a tremendously effective and controllable way of getting new business.

How have you gotten on with AdWords in your company?

Since we started we’ve created 129 campaigns, 4681 ad groups, 19,799 ads, 11,104 negative keywords, and 191,672 keywords. Believe it or not 99% of those keywords have unique tracking parameters in their landing URLs so that we can do very exact ROI calculations.

If you’re just starting out, there is probably no need to go to those extremes yet. In fact, you’re better off starting one niche campaign and learning from it as you go and then expanding outwards. So, where should you start? First of all, let’s talk about how to structure your AdWords account. The very simplest AdWords account would look like this:

The Most Basic AdWords Account Structure

Now, unfortunately most of us don’t work in companies selling just one product or service, so this example isn’t going to be of any use, but by adapting it over the course of a few examples it will help to show more clearly the benefits of a well structured campaign.

Say for example that you are running a small clothes shop selling t-shirts, hats and shoes. There are lots and lots of keywords relating to these products that you hope will bring people to your website and lead to a sale. The simplest thing for you to do would be to put all the keywords into the one ad group in the one campaign shown above and hope for the best.

Lots Of Keywords In One Ad Group In One Campaign

Unfortunately though, you’ve left the rest of your account unchanged, so now someone searching for a new hat sees the same ad as someone searching for new shoes. Your ad is going to have to try and speak to both people, meaning it won’t be as focused as it could be, meaning you’re going to get a lower click through rate, which will in turn lead to a lower quality score, and ultimately a higher cost per click.

You’re also going to land both types of visitor on the same landing page, which means it’s going to have to be very general, and from experience this will lead to a much lower conversion rate than landing each type of visitor on a page relevant to the product that they searched for.

In this simple example, you are better off running three separate campaigns, one each for t-shirts, hats and shoes. You could run different ads, bids and landing pages per keyword in the original example but splitting them out into separate campaigns makes it much easier to monitor the overall performance of your advertising for each product category. Now at least someone searching for shoes will see an ad related to shoes. This should lead to a better click through rate, and consequently a better quality score for your shoes keywords and ads, and ultimately you will end up paying less per click.

Multiple Campaigns Per Account

Now the exact same advantages can be had by sub-dividing within these new campaigns too. For example, in your t-shirts campaign, if you sell a number of different styles or brands of t-shirt, then you should create different ad groups for each. This again lets you run different ads for each brand or style, and also lets you land the visitor on a page specific to whichever product they’re interested in.

Visitors landing on pages that closely match the keywords they searched for are much more likely to convert. AdWords will also give your keywords and ads better quality scores for having more relevant landing pages, again potentially reducing your cost per click.

Multiple Ad Groups Per Campaign

Ultimately you can keep breaking campaigns down more and more by sub-dividing your products. You can even go as far as to create specific ads and landing pages for each individual keyword in your account. It is definitely worth the effort to do this as much and as best you can as it can significantly reduce your overall cost per click, and increase your conversion rate at the same time.

In my next post I will talk about how to decide what to bid per keyword, and how to monitor your ROI.

At ReavHealth.com we have spent a lot of time working on CPC campaigns and we are always looking for ways to increase our click-through rates without increasing our costs. The bulk of what we do involves tweaking ad text and adjusting bids to reflect the revenue potential of the keywords. However, there is one method that we have found to be an effective means of increasing CTR that requires remarkably little effort, and that is to maximise the physical presence of your advert on the page.

Advertising pricing is normally based on two factors: size and placement. Both of these factors attempt to price ads based on potential viewer attention – the more attention a placement is likely the get the more it costs. Size is simple, the bigger the advert the more it costs. Placement is slightly more complicated but works on the same principle. In traditional print advertising we tend to see the following pattern:

• Front of the publication is more expensive than the back
• Right page is more expensive than left
• Top is more expensive than bottom

In creating an effective advertising bidding market place, Google and the other search engines have tried to simplify this by eliminating the size variable. They give advertisers very prescriptive maximum lengths for their adverts which ostensibly create an even playing field for a position only pricing model.

This creates the illusion to advertisers starting a PPC campaign that the ad size is fixed and is not a factor to be taken into consideration. However, at RevaHealth.com we have come to realize that spending some time focusing on the size of the ad is one of the easiest ways to increase CTR without increasing our bids.

How to Maximise your use of Space

1. Line Length. Google gives you 25 characters for your title, 70 characters for the body and 35 characters for the URL. USE THEM ALL! Every character you use increases the size of your ad and therefore attracts more attention than if you don’t use all of the available space. This is particularly important if your ad is going to appear in the premium sponsored positions above Google’s search results rather than in the right hand column.
2. Bolding. If the keywords a user is searching for are repeated in your ad, then they will automatically be bolded when Google displays it. Bolded words attract more attention than normal words, and increased attention equals increased CTR. Our internal guidelines look to repeat the keywords at least once in the title, once in the body and once in the display URL.
3. Use Capitals. Each capital letter you use increases visitor attention. Google does not allow you to use capitals letters for everything, but they do allow you to start each word with one, and this is our policy.

Worked Example

The following three sponsored listings were returned when I searched for ‘Dentists Hungary’ in Google. Our advert appears in 3rd position, however because of its effective use of the allowed real estate it achieves a higher CTR than its position would normally merit.

Dentists in Hungary
www.Access-Smile.ie/Hungary Irish Company, Consultation Ireland Full no quibble treatment guarantee

Dentists in Budapest
www.dacadia.eu Save up to 60% on you dental treatment and enjoy the vacation

Find Dentists In Hungary
Dentists.RevaHealth.com/Hungary Huge Choice Of Dentists In Hungary New Pics, Prices, Maps, Free Quotes

Analysis

When you analyse each ad the objective differences become obvious. Our Advert uses more of the available space in each metric.

A word of warning – while it is important to effectively use the space provided you must never take your eye off of your messaging. You use of the space and bolding keywords may attract the visitors attention, however if your call to action is poor they will never click on the advert.