One question that many business owners ask is ‘What is Google AdWords?’. AdWords is Google’s pay per click advertising platform that shows ads across Google search engine results pages, as well as on third party sites on the Google Display Network, such as blogs and other informational sites. In broad terms, text ads can run on search results, whilst text, image, video and other rich media ads are eligible to run on the Google Display Network.
AdWords launched in October 2000 with 350 customers and now it accounts for the majority of their income. Google’s advertising revenue in 2012 was $42.5 billion.
Businesses use AdWords to generate awareness and interest in their products and services, and of course to drive sales to increase profit. For more on why to use AdWords, see our article here.
As it’s a pay per click system, you only pay when someone clicks on one of your ads. AdWords is a blind auction, which means that you set bids for your keywords, without knowing your competitors’ bids, and this partly determines the position your ad will appear on the page – a higher bid will result in your ad being shown higher on the page. Ad position on the page is not just about bid, but another major concept is Quality Score, covered in our article ‘What is Quality Score?‘. Essentially Google wants to show the most relevant ads for the searcher, so Quality Score is in simple terms a measure of relevance. If your keywords, ads and web page are highly relevant and closely related then your Quality Score is likely to be higher. If your Quality Score or your bid rises, your ads will show higher on the page, attracting more clicks.
An AdWords account is organised in the following way: at the top level is the account, and in this are campaigns, and in campaigns are adgroups which contain a closely related set of keywords and ads. For example, a plumber in London might have a campaign called ‘Plumbing’ and within this have an adgroup for the Clapham area, containing keywords such as ‘plumber in clapham’, together with ads about plumbing in Clapham.
Effectively, you create ads and add keywords and then your ads will appear immediately. One of the major benefits of AdWords is that your ads appear at exactly the point when a potential customer is searching for the product or service you offer, meaning that visitors to your site are more likely to buy. So that you attract the right type of visitor, you can target by device (partly), time and location. Ads can appear on computers, laptops, tablets and mobile phones and you can ‘geo-target’ ads to be displayed across countries or just in one region such as London or a radius of your business, so that you can target the exact region where your target audience is located. You can set the time of day and day of the week your ads will show. The system is very sophisticated and there are several other settings and features that determine where and when your ads will show and what will appear with your ads. Importantly, daily budget for your campaigns can be set so that you do not spend any more than you want to and you can also set bids for each keyword, so that you do not pay more than you want to per click.
As well as ads appearing on the search results, Google’s Display Network show ads on 3rd party sites such as blogs. The approach taken for adverts on the Display Network is different than that of the search results because when people see your ad on a blog, they are not actively seeking your product or service as they do when searching on Google. People viewing your ads on the Display Network are more likely to be in a higher part of your buying funnel, at the awareness and interest phase or they may not even be in your buying funnel at all and this is partly why the approach is different.
Another use of the Google Display Network is for remarketing. This is when ads are shown to people who previously visited your site. So, for example, if someone clicked on one of your ads in the search results and visited your site, then left without contacting you, ads can then be show to this visitor when they happen to be on a site such as a blog that is showing Google ads. The idea is to then have them click on the ad, visit your site again and then contact you. This works well because by visiting your site originally, they have demonstrated an interest in your product or service and so are more likely to perform the action you want them to when they revisit your site. This has worked very successfully for my clients.
Some Important AdWords Terms, Definitions and Formulas
Impression – this is when someone has searched using one of your keywords and has triggered your ad to display, so 100 impressions means your ad has shown 100 times
Click – this is when someone clicks on one your ads
Click Through Rate (CTR) – this is the number of times the ad was clicked, divided by the number of times the ad was shown, expressed as a percentage:
CTR = Clicks/Impressions x 100
For example if you have had 5 clicks and 100 impressions then CTR = 5/100 x 100 = 5% CTR. A higher click through rate is better, because it demonstrates greater interest in your ads, you will receive more clicks and this will lead to a higher Quality Score, because Google associates a higher CTR with a more relevant ad, and therefore cost per click is likely to be lower for the same ad position.
Cost Per Click (CPC) – this is the amount you actually pay per click. This is different to the amount you bid (your Max CPC) which may be higher. So, you might bid £0.50 and your CPC might be £0.42.
Conversion – this is defined as when someone takes the action you want them to take on your web site, for example filling out your contact form, calling you, purchasing a product or signing up for a newsletter. This is critical, as this is often one of your business goals for your AdWords campaign, for example we might aim for 100 conversions per month. It’s imperative that conversions are measured and AdWords Hero measures everything. Conversions can be measured with AdWords conversion tracking and Google Analytics
Cost Per Conversion (also known as Cost Per Acquisition or CPA) – this is the cost for a conversion action such as an online sale
Average Cost Per Conversion = Cost/Number of Conversions
For example if your campaign has cost £100 and you’ve had 10 conversions then the average cost per conversion is £10. Again, this is metric is vital as one of your business goals might be to generate 100 conversions per month at an average cost of £10 per conversion. Cost per conversion is important because you can work out how profitable your campaigns are when considering the profit you make per sale and the cost per sale, in the form of return on investment (ROI) – see below
Conversion Rate – this is the rate at which people who clicked an ad, then performed your desired action such as a newsletter sign-up and is expressed as a percentage:
Conversion Rate = Number of Conversions/Clicks x 100
For example, if you had 10 conversions and there were 100 clicks, your conversion rate would be 10%. Three ways to increase conversion rates are by reducing irrelevant clicks, improving ads and your landing page, the page the visitor lands on when clicking an ad.
Return on Investment (ROI) – This can defined as the ratio between AdWords cost and revenue, expressed as a percentage.
ROI = Revenue/AdWords Cost x 100
For example £200/£100 x 100 = 200% ROI. This is important because in simple terms, in one way it defines the success of your campaigns and whether they are profitable. If you spend £1 and make £1 revenue then you are breaking even. Again it might be one of your business goals to aim for 200% ROI.
I’ve now answered what is Google AdWords and discussed some AdWords terms, perhaps you would now like to read my related article, ‘Why Use AdWords?‘.
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