Recently I saw a fantastic infographic from Wordstream’s blog explaining just how the Google adwords auction works. Google adwords is a pillar of search engine marketing, accounting for $32.2 billion revenue for Google! That’s 97% of their total revenue! This infographic explains how pay-per-click (PPC) marketing works very well. It clarifies the adwords process, showing just how simple yet brilliant it is. For this blog post, I’ll first discuss the basics of how adwords works and then some interesting findings.
The first basic principle behind adwords is that advertisers bid on keywords where they want their ads to appear in Google SERPs. Depending on how popular/competitive the keyword is, the advertiser will have to pay more or less to rank for that keyword. This isn’t in the infographic, but it is extremely important for advertisers to conduct extensive and thorough keyword research. Including long-tail keywords (keywords that have more words, typically with lower search volumes but more interested searchers) is very smart as you are reaching an audience that is more likely to convert and will most likely pay a lower cost per click.
Speaking of cost per click, let’s talk about how the bidding process works. There are just two factors that determine where your ad ranks. They are maximum bid and quality score. The maximum bid is the maximum bid that you will pay for a click of your ad. Most adwords ads use a CPC model meaning that you are only paying Google each time your ad is clicked (your ad could be seen by millions of people but if nobody clicks it, you don’t have to pay a dime).
Quality score is more complicated. It is used to measure the relevance and usefulness to the user. It is made up of click-through-rate (how many people don’t hit the back button upon reaching your site, but continue to browse through?), relevance (is the content from your written ad found on your page?), and the landing page (does the ad direct to a page created to target just those users or does it direct to the home page?).
Advertisers do not always pay what they set as the maximum bid each time an ad is clicked. Google has another equation determining how much an advertiser pays:
Price = Ad Rank (which is Max CPC x Quality Score) of the person below you / Your quality score + 0.01.
The biggest thing I took away from this was: advertisers, build a good quality score! That may mean developing landing pages that are highly targeted to the users clicking on that specific ad. PPC is an inexact science. It takes time to determine the success of a campaign (likely using Google analytics) and finding the click-through rates of landing pages. Also, adjust your maximum CPC to give you the best ROI.
One last interesting find from the infographic: the most expensive keywords to rank for are Insurance, Loans, Mortgage, and Attorney. To see everything I just explained told in pretty pictures, check out the Wordstream infographic.