Tips to advertise smart with google adwords

This article is based on inputs from Hal Varian, Google’s Chief Economist, speaking on how your max CPC bid and quality score determine how much you pay for a click on Google.com.

Google is the biggest medium on the internet for advertising. If you do online business, there’s a slim chance of your getting very big without advertising. So you would do well to understand google’s advertising platform, adwords.

Adwords appear in your searches in the right column. Also on top, as ‘sponsored links’. How do you get your ad there and how much will it cost you?

To advertise on google all you need is a google account (set up gmail) and follow a few self explanatory steps at adwords.com. These steps will guide you to set up a “campaign” with one or more “ads” and a set of “keywords” in an “adgroup”.

If the last two words got you, it’s because online advertising is keyword driven, unlike advertising in a magazine. In a magazine you would pay first and pray later (to get some response). In adwords you pray first (for people to click on your ad) and you pay later, based on the number of clicks.

Why would people click your ad? Because it would be displayed to them in the context of their search. Let’s say they search for ‘toilet paper’. Since you make toilet paper, you would put ‘super absorbent toilet paper’ as a keyword for the ‘toilet paper adgroup’ in your campaign. This way google will know that the keywords in your toilet paper adgroup are ‘relevant’ to the search and your ad will be displayed. If you also make tissue paper you would put that in another adgroup.

In this process, the user gets what she wants (super absorbent toilet paper), google gets what it wants (relevant search, helpful results) and the advertiser gets what he wants (pay only when clicked by a real prospect).

But there’s more. You can actually pay less than other advertisers by being more relevant to the user. Why? Because that makes the user and google happier too. So how do you get more relevant?

What you do is focus on 3 things as you monitor your campaign. Your adwords dashboard provides these statistics online.

1. Click through rate (CTR): Of the total displays (impressions) what percentage have clicked through on your ad. The higher this percentage the better users find your ad. So google assumes it to be more useful.
2. Relevance: You may have a very attractive ad, but do the words used in your ad, keywords and landing page match? If they don’t, you’re conning the system. On the landing page, google checks for your title (text in blue bar on top), description and keywords / tags, headlines, picture titles, bold words, linked words (anchor text).
3. Landing page: Does the page users land on look like a website / blog or is it a standard hole-in-the-wall kind of replicated shop. Google determines this by the number of links on your page (both to internal pages and to other sites). A replicated page will just try to suck the user into giving their email address and not provide much more value. So google will be wary. Also, if many users click ‘Back’ from your page, you won’t score well.

Based on these three factors (in the same order of priority), google gives you a quality score (QS), which should be closest to 10 to be good.

Now, the price you bid multiplied by your quality score will be your ad rank. A high rank means your ad gets a high position in the sequence of ads… on page 1 / page 2 etc. So your ad may rank pretty low (or not at all) if it has a poor QS. All you’ll do is burn money on it.

Conversely, if you tweak the three parameters of QS, you could get away paying less!

So do you pay your bid multiplied by your QS? No. You pay even less in the google economy. The price you pay (cost per click; CPC) is equal to the bid of the ad ranked below yours multiplied by his quality score divided by your quality score. Since he is ranked lower, even if you have bid more you would pay less!

Net net, it really pays to have a high quality score. So be good to google and to your user and prosper!