With a 65 percent share of the US search market, Google is a company you’ll probably end up dealing with if you’re going to be running pay-per-click (PPC) ads online. But while Google makes money every time someone clicks one of its ads, most advertisers don’t make money until someone buys one of their products, meaning they’re looking at optimizing their PPC campaigns around Cost Per Sale or Cost Per Acquisition (CPA). Is this putting Google at odds with its advertisers?
Google attaches a Quality Score to each ad/keyword combination. That, along with your maximum cost-per-click (CPC) bid, determines where your ad will fall on the page (if it’s eligible at all). Here’s how Google determines your Quality Score:
- The historical clickthrough rate (CTR) of the keyword and the matched ad on Google; if the ad is appearing on a search network page, its CTR on that search network partner is also considered
- Your account history, which is measured by the CTR of all the ads and keywords in your account
- The historical CTR of the display URLs in the ad group
- The relevance of the keyword to the ads in its ad group
- The relevance of the keyword and the matched ad to the search query
- Your account’s performance in the geographical region where the ad will be shown
- Other relevance factors
As you can see from the first three bulletpoints, Google’s algorithm is set up to reward ads that have a high click-through-rate or CTR. Say Advertiser A and Advertiser B each have an ad for widgets. Advertiser A’s ad has a 1.5 percent CTR while Advertiser B’s ad has a 2 percent CTR. Advertiser B will get a higher placement or the same placement for a lower cost-per-click (CPC) (assuming all other variables Google uses between the two advertisers are equal, which they never would be, but this is a hypothetical situation, so gimme a break here…)
The problem is that advertisers often use their text ads on Google as a way to filter out bad leads. For example, let’s say the “widget” in the above example is a LinkedIn webinar. Each company is offering a different LinkedIn webinar and they’re each charging $99 for it. Advertiser A’s ad looks like this:
And Advertiser B’s ad looks like this:
Advertiser A has a lower CTR because some people who read that ad are saying to themselves “I’m not forking over $99 for that!” But the people that DO click on the ad already know this webinar is going to cost them $99 which means there’s a better chance they’ll actually “convert”, or buy the webinar.
Google DOES offer tools that help you to optimize your campaign based on conversions. But you’re still playing by the same rules: changing your text ad can help you INCREASE your conversion rate while at the same time DECREASING your CTR. This decrease in CTR decreases your Quality Score which means you’ll have to pay more for the same position that you’d have if your CTR was better.
Google has no reason to change this system. They want to show ads that get more clicks because more clicks means more money in their pocket. And as an advertiser, you’d be willing to pay more for keywords and ads that have a higher chance of converting.
What advertisers need to do is do the math. Take the above example of Advertiser A and Advertiser B. You need to look at all variables (cost-per-click, conversion rate, profit per conversion) to determine which path is the better one to take.
Google AdWords is a great way of driving revenue to your company. It’s just important to know what’s happening behind the scenes and optimizing your campaigns so that you’re making money, not just helping Google’s bottom line.