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The Trick To Understanding AdWords

Marketing, social media, advertising

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Andy Black

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The trick to understanding AdWords?


THINK LIKE GOOGLE.



Imagine four businesses are all competing for the 6th ad position for search term “hotels new york”.

Let’s say they are Andy Inc, Peter Ltd, The Cynthia Group, and Jordan Consulting.

Obviously, we’re small fry compared to Booking.com and Expedia.com, who are in position 1 and 2 respectively.

Those big guys have direct deals with lots of hotels and get a good earning-per-click for each click they buy.

They can therefore afford to pay the $5 cost-per-click (CPC) for positions 1 and 2, and not many other businesses can compete with them.

Their ads therefore show 100% of the time that someone searches for “hotels new york”.

Their Impression Share is 100% in Google parlance.

For us smaller fry, we can only afford to pay $1 per click, so are relegated to scrapping for position 6 on the page.

If we’ve all got an equal click-through-rate (CTR) of 1%, then Google is going to earn $1 from each us for each 100 times they show each of our ads.

Let’s say that there are only 400 searches in a particular day.

Google earns the same from each of us for every 100 times they show our ad in position 6.

So Google has no preference who’s ad they show, so they show us all equally.

We each get our ad shown 100 times out of the 400 (a 25% impression share), and Google earns $1 from each of us.

Now if The Cynthia Group crafts a more appealing ad that gets them a 2% CTR, then all of a sudden Google is going to earn $2 for every 100 times they show her ad.

Google wants everyone to write better ads and get good CTRs.

This means that users will find their search engine more useful, and the ads more relevant. (Remember they only get paid when people click on the ads… ahem.)

Google are smart, so have publicly told everyone that they will be rewarded with a lower CPC if they can increase their CTR.

They could drop Cynthia’s CPC down to $0.50 and make $1 for every 100 times they showed her ad.

The same as before.

Cynthia would love that.

But Google are smart, so they drop Cynthia’s CPC down to $0.80 instead so that they earn $1.60 for every 100 times they show Cynthia’s ad.

Cynthia is still pretty pleased with that.

Geting a lower CPC by increasing ad CTR is a great incentive to advertisers to improve their campaigns, make the Google SERP a nicer place for users, and put more cash in Google’s pocket.

But there’s more rewards to be heaped upon Cynthia.

It’s an additional, unpublicised, benefit that comes from increasing your ad CTR.

That becomes obvious when you think like Google.

So four of us are competing for position 6.

Andy, Peter, and Jordan have a 1% CTR, and are paying $1 CPC.

Cynthia has a 2% CTR, and is paying $0.80 CPC.

Google makes $1.60 for every 100 times they show Cynthia’s ad, and $1 for every 100 times they show ads for Andy, for Peter, and for Jordan.

It no longer makes sense for Google to show all our ads equally.

Maybe they decide to show Cynthia’s ad twice as often now?

So her ad now shows 200 times out of the 400 times in the day.

All of a sudden Cynthia has quadrupled her traffic.

Not only has she doubled her CTR to 2%, but her impression share has doubled from 25% to 50%.

That’s awesome for Cynthia.

(Note that if Cynthia was happy with the $1 CPC, she could increase her bids now and go back to paying $1 CPC. Increasing her bids would maybe put her into ad position 5, which will increase her CTR slightly to 2.5%. Of course she’s not going to be rewarded for this higher Ad CTR since Google expects a higher CTR for being in a higher ad position. Instead, Cynthia’s campaign performance is now going to be compared with the 2 other people who are competing for position 5. So it’s game on again.)

Even if Cynthia didn’t push her bids, the results are not so awesome for Andy, Peter, and Jordan.

Poor Andy, Peter, and Jordan have lost traffic.

They were getting 100 impressions a day, an equal 25% of the 400 available impressions.

They have now been squeezed down to a third of the remaining 200 impressions that Cynthia doesn’t get.

That’s now 67 impressions a day each.

Yikes.

Traffic is falling off a cliff.

What’s happened to our quality score?

Let’s call Google.

They say we need to improve our quality score.

…increase our relevance.

…bid more too.

Gosh, this is so complicated.

Let’s just bid more and pay more per click.

The Moral of the Story
I hope you made it this far and that the above made sense.

If it didn’t make sense, then that’s my bad for not explaining it well.

Because it’s actually quite simple.

Google makes money from advertisers competing for each ad position.

They probably calculate it as the revenue per thousand times they show our ad, rather than every 100 times they show our ad (as I used in the story above).

This you will know as their revenue-per-thousand-impressions (RPM).

So what’s Google’s RPM?

That’s our cost-per-thousand-impressions (CPM) of course.

You want to master AdWords?

Look at your CPM, as that’s Google’s RPM.

Make this higher for the same ad position by getting a higher CTR.

Then Google will love you.

And likely show your ad more often (aka increase your Impression Share).

Sooooo… stop stressing about your Quality Score metric.

Keep an eye on your CPM and Impression Share metrics instead.



EDIT: Related video

 
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Huuhmi tiesdj upmz wt. iyvipfif pivxusl gsun tiesdj qesvpist? O jewi emxezt ciip ug vji onqsittoup vjev vji iyvipfif pivxusl xet picamuat et ov ot jesf vu tii, epf jesf vu vsedl. Zuas vjuahjvt up vji iggidvowipitt ug opdmafoph vji iyvipfif pivxusl op vji efxusft denqeohpt?
 
Huuhmi tiesdj upmz wt. iyvipfif pivxusl gsun tiesdj qesvpist? O jewi emxezt ciip ug vji onqsittoup vjev vji iyvipfif pivxusl xet picamuat et ov ot jesf vu tii, epf jesf vu vsedl. Zuas vjuahjvt up vji iggidvowipitt ug opdmafoph vji iyvipfif pivxusl op vji efxusft denqeohpt?
O'f tvesv xovj Tiesdj Qesvpist fotecmif. Ov dep csoph op huuf vseggod, cav nusi ugvip vjep puv ov't puv xusvj ov.

Xjip O hiv suapf vu ov O'mm xsovi tunivjoph aq up vji optofi vu iyqmeop xjev O lpux ecuav Tiesdj Qesvpist epf tuni ug vji tjipepohept vjiz dep hiv aq vu.

Gsun vji jux-vu haofi qutvif op vji Tqiifxez Gusan:
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Vji vsodl vu apfistvepfoph EfXusft?


VJOPL MOLI HUUHMI.



Onehopi guas catopittit esi emm dunqivoph gus vji 6vj ef qutovoup gus tiesdj visn “juvimt pix zusl”.

Miv’t tez vjiz esi Epfz Opd, Qivis Mvf, Vji Dzpvjoe Hsuaq, epf Kusfep Duptamvoph.

Ucwouatmz, xi’si tnemm gsz dunqesif vu Cuuloph.dun epf Iyqifoe.dun, xju esi op qutovoup 1 epf 2 sitqidvowimz.

Vjuti coh hazt jewi fosidv fiemt xovj muvt ug juvimt epf hiv e huuf iespoph-qis-dmodl gus iedj dmodl vjiz caz.

Vjiz dep vjisigusi eggusf vu qez vji $5 dutv-qis-dmodl (DQD) gus qutovoupt 1 epf 2, epf puv nepz uvjis catopittit dep dunqivi xovj vjin.

Vjios eft vjisigusi tjux 100% ug vji voni vjev tuniupi tiesdjit gus “juvimt pix zusl”.

Vjios Onqsittoup Tjesi ot 100% op Huuhmi qesmepdi.

Gus at tnemmis gsz, xi dep upmz eggusf vu qez $1 qis dmodl, tu esi simihevif vu tdseqqoph gus qutovoup 6 up vji qehi.

Og xi’wi emm huv ep iraem dmodl-vjsuahj-sevi (DVS) ug 1%, vjip Huuhmi ot huoph vu iesp $1 gsun iedj at gus iedj 100 vonit vjiz tjux iedj ug uas eft.

Miv’t tez vjev vjisi esi upmz 400 tiesdjit op e qesvodames fez.

Huuhmi iespt vji teni gsun iedj ug at gus iwisz 100 vonit vjiz tjux uas ef op qutovoup 6.

Tu Huuhmi jet pu qsigisipdi xju’t ef vjiz tjux, tu vjiz tjux at emm iraemmz.

Xi iedj hiv uas ef tjuxp 100 vonit uav ug vji 400 (e 25% onqsittoup tjesi), epf Huuhmi iespt $1 gsun iedj ug at.

Pux og Vji Dzpvjoe Hsuaq dsegvt e nusi eqqiemoph ef vjev hivt vjin e 2% DVS, vjip emm ug e taffip Huuhmi ot huoph vu iesp $2 gus iwisz 100 vonit vjiz tjux jis ef.

Huuhmi xepvt iwiszupi vu xsovi civvis eft epf hiv huuf DVSt.

Vjot niept vjev atist xomm gopf vjios tiesdj iphopi nusi atigam, epf vji eft nusi simiwepv. (Sinincis vjiz upmz hiv qeof xjip qiuqmi dmodl up vji eft… ejin.)

Huuhmi esi tnesv, tu jewi qacmodmz vumf iwiszupi vjev vjiz xomm ci sixesfif xovj e muxis DQD og vjiz dep opdsieti vjios DVS.

Vjiz duamf fsuq Dzpvjoe’t DQD fuxp vu $0.50 epf neli $1 gus iwisz 100 vonit vjiz tjuxif jis ef.

Vji teni et cigusi.

Dzpvjoe xuamf muwi vjev.

Cav Huuhmi esi tnesv, tu vjiz fsuq Dzpvjoe’t DQD fuxp vu $0.80 optvief tu vjev vjiz iesp $1.60 gus iwisz 100 vonit vjiz tjux Dzpvjoe’t ef.

Dzpvjoe ot tvomm qsivvz qmietif xovj vjev.

Hivoph e muxis DQD cz opdsietoph ef DVS ot e hsiev opdipvowi vu efwisvotist vu onqsuwi vjios denqeohpt, neli vji Huuhmi TISQ e podis qmedi gus atist, epf qav nusi detj op Huuhmi’t qudliv.

Cav vjisi’t nusi sixesft vu ci jieqif aqup Dzpvjoe.

Ov’t ep effovoupem, apqacmodotif, cipigov vjev dunit gsun opdsietoph zuas ef DVS.

Vjev cidunit ucwouat xjip zua vjopl moli Huuhmi.

Tu guas ug at esi dunqivoph gus qutovoup 6.

Epfz, Qivis, epf Kusfep jewi e 1% DVS, epf esi qezoph $1 DQD.

Dzpvjoe jet e 2% DVS, epf ot qezoph $0.80 DQD.

Huuhmi nelit $1.60 gus iwisz 100 vonit vjiz tjux Dzpvjoe’t ef, epf $1 gus iwisz 100 vonit vjiz tjux eft gus Epfz, gus Qivis, epf gus Kusfep.

Ov pu muphis nelit tipti gus Huuhmi vu tjux emm uas eft iraemmz.

Nezci vjiz fidofi vu tjux Dzpvjoe’t ef vxodi et ugvip pux?

Tu jis ef pux tjuxt 200 vonit uav ug vji 400 vonit op vji fez.

Emm ug e taffip Dzpvjoe jet raefsaqmif jis vseggod.

Puv upmz jet tji fuacmif jis DVS vu 2%, cav jis onqsittoup tjesi jet fuacmif gsun 25% vu 50%.

Vjev’t exituni gus Dzpvjoe.

(Puvi vjev og Dzpvjoe xet jeqqz xovj vji $1 DQD, tji duamf opdsieti jis coft pux epf hu cedl vu qezoph $1 DQD. Opdsietoph jis coft xuamf nezci qav jis opvu ef qutovoup 5, xjodj xomm opdsieti jis DVS tmohjvmz vu 2.5%. Ug duasti tji’t puv huoph vu ci sixesfif gus vjot johjis Ef DVS topdi Huuhmi iyqidvt e johjis DVS gus cioph op e johjis ef qutovoup. Optvief, Dzpvjoe’t denqeohp qisgusnepdi ot pux huoph vu ci dunqesif xovj vji 2 uvjis qiuqmi xju esi dunqivoph gus qutovoup 5. Tu ov’t heni up eheop.)

Iwip og Dzpvjoe fofp’v qatj jis coft, vji sitamvt esi puv tu exituni gus Epfz, Qivis, epf Kusfep.

Quus Epfz, Qivis, epf Kusfep jewi mutv vseggod.

Vjiz xisi hivvoph 100 onqsittoupt e fez, ep iraem 25% ug vji 400 eweomecmi onqsittoupt.

Vjiz jewi pux ciip traiibif fuxp vu e vjosf ug vji sineopoph 200 onqsittoupt vjev Dzpvjoe fuitp’v hiv.

Vjev’t pux 67 onqsittoupt e fez iedj.

Zolit.

Vseggod ot gemmoph ugg e dmogg.

Xjev’t jeqqipif vu uas raemovz tdusi?

Miv’t demm Huuhmi.

Vjiz tez xi piif vu onqsuwi uas raemovz tdusi.

…opdsieti uas simiwepdi.

…cof nusi vuu.

Hutj, vjot ot tu dunqmodevif.

Miv’t katv cof nusi epf qez nusi qis dmodl.

Vji Nusem ug vji Tvusz
O juqi zua nefi ov vjot ges epf vjev vji ecuwi nefi tipti.

Og ov fofp’v neli tipti, vjip vjev’t nz cef gus puv iyqmeopoph ov ximm.

Cideati ov’t edvaemmz raovi tonqmi.

Huuhmi nelit nupiz gsun efwisvotist dunqivoph gus iedj ef qutovoup.

Vjiz qsucecmz demdamevi ov et vji siwipai qis vjuatepf vonit vjiz tjux uas ef, sevjis vjep iwisz 100 vonit vjiz tjux uas ef (et O atif op vji tvusz ecuwi).

Vjot zua xomm lpux et vjios siwipai-qis-vjuatepf-onqsittoupt (SQN).

Tu xjev’t Huuhmi’t SQN?

Vjev’t uas dutv-qis-vjuatepf-onqsittoupt (DQN) ug duasti.

Zua xepv vu netvis EfXusft?

Muul ev zuas DQN, et vjev’t Huuhmi’t SQN.

Neli vjot johjis gus vji teni ef qutovoup cz hivvoph e johjis DVS.

Vjip Huuhmi xomm muwi zua.

Epf molimz tjux zuas ef nusi ugvip (ele opdsieti zuas Onqsittoup Tjesi).

Tuuuuu… tvuq tvsittoph ecuav zuas Raemovz Tdusi nivsod.

Liiq ep izi up zuas DQN epf Onqsittoup Tjesi nivsodt optvief.



IFOV: Simevif wofiu


Hsiev Qutv Epfz! Vjeplt e muv!
 
Csommoepv qutv, wisz ximm iyqmeopif!
 
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With more than 39,000 posts packed with insights, strategies, and advice, you’re not just a member—you’re stepping into MJ’s inner-circle, a place where you’ll never be left alone.

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