You’ve written what you perceive to be a good ad (or let’s hope you wouldn’t have written it). But, what you perceive doesn’t matter. It doesn’t matter to the search engine (Google in this example), and it doesn’t matter to the searchers. What matters is what the searchers think of your ad compared to the motivation that sparked their search, in relation to all of the options in the results they have to choose from.
But, this information isn’t readily available to you. Sure, you can see what your click-through rate (CTR) is, but you have almost no idea if it’s good or bad or how it compares to every other listing you’re competing against. I say “almost” because you can have a sense if it’s good or bad over time through testing and experience with PPC. But I believe you can get a better idea of where you stand if you crunch a few numbers.
Here’s an overly simplified example to help you understand the concept. I have an ad that’s advertising on the top keyword for my business. I’ve not paid much attention to my bids up to this point because there have always been more important optimizations to make (bidding is not relatively important compared to other optimizations you can make). But now my account is pretty mature and functioning pretty well. Now I’m thinking about how I can dive into more granular levels of analysis and squeeze extra dollars and cents out of my campaigns. I start with my top keyword. By itself, it spends about 10% (thousands each month) of my total PPC budget. So, I’m pretty optimistic that optimizing at this level will be worth the time.
For simplicity’s sake, let’s say I’m bidding $7.50 and I show in the #1 position in 100% of the auctions. Competitor 1 shows in the #2 position in 100% of the auctions. I can take this information and combine it with what I know about how the ad auction works: I only pay the price of the max CPC bid of the advertiser that ranks below me. Since this is true, I know that my average CPC is around what Competitor 1 is bidding. My average CPC on this keyword has been $5.20.
If I want to see how my ad compares to his, I can lower my bid to $5.20 and then look at a kind of new metric in AdWords–Position Above Rate (in the Auction Insights report). After I lower my bid, how does this metric change? I know that if I show above my competitor in the auctions more than 50% of the time, then my ad has a higher quality score. If he shows above me more than 50% of the time, then he’s got the better quality score.
What good is this information? Probably the biggest takeaway here is that instead of blindly testing, you can learn what’s most important for you to test RIGHT NOW so you can prioritize your efforts. I want to know how my ad’s performance and my bid relate to my results so that I know what needs work. What kind of combination do I have here? Am I only in the #1 position 100% of the time because I’m bidding over $2 more than my competitor? If I bid the same amount as him, will I stay in the #1 position most of the time? If I do, I know I’ve got a good ad. Now I know I’ve got to focus on bid optimization to find the sweet spot of total value to my business.
If he now ranks above me more often than I rank above him, I know that I might need to work on my ad. I can test the angles that Competitor 1 is taking and see if they perform better for me as well. You do have to be careful here because there’s the possibility of having a “more relevant ad” according to Google’s quality score, and it bringing a worse ratio of relevant-to-irrelevant clicks. This can result in less profit to your business, when in fact you should optimize for total profit to your business.
If Competitor 1’s type of ads don’t work better for me for profit, I might be content to have an ad that “under-performs” his in Google’s eyes (but outperforms for profit) while staying under Competitor 1 and moving on to analyzing my relationship to Competitor 2. If my new ad does perform better for me, I’ve learned from my competitor and I’m now using that information to compete with him. I can also keep testing along the same vein until I figure out something that beats him.
Now, as I mentioned, this is a simplified example. You don’t truly know many things that we’re assuming here. You don’t know actual keyword/ad combination quality scores used in the auctions. You don’t know that your competitor’s bid stays static. For example, if they automate their bids to stay around position 2, their bid could drop during your test, skewing position-above rates that you use in your post-analysis. But, you can usually tell savvy advertisers from less savvy ones and get a sense of what they’re doing.
In the end, your quality score and your bid are the only two factors that go into your ad position in the results. Although it’s not a perfect formula, you sure can get a sense of which needs to be worked on (if not both), learn things about the searchers, and ultimately find that sweet spot of profitability. Heck, for all you know, you could get the same amount of profit in lower positions. If you save yourself a dollar per click through any combination of a better ad and/or bid while keeping the same amount of clicks/conversions, and your keyword gets 10 clicks per day, that’s a savings of $300 per month that’s residual. And that’s only one keyword! It sure is worth the time and effort to find out if you can make it happen, isn’t it?