The most common questions I’ve been receiving lately pertain to Google Adwords – and pay-per-click advertising in general. People are drawn to the apparent speed and efficiency of this form of advertising. And in a way, they’re right to be enamored. It’s a quick way to establish a presence on the search engines. And best of all, you only pay when people click your ad.

What people fail to realize is that the market for these ads is often very competitive, and you will likely have to slug it out with some pretty sophisticated advertisers that know exactly what they can afford to pay for a click.

So my first word of advice in this arena is always to be sure you understand what you can afford to pay in marketing costs to drive your desired visitor behavior (a sale, a lead, a download, etc.).

A highly simplified illustration… Suppose you sell a single product online for $50 and your non-marketing costs (product, fulfillment, overhead, etc.) amount to $35. Marketing costs in excess of $15 represent a losing proposition for you because you are left with no margin.

Working backwards from the $15 maximum you can afford to spend, let’s suppose that your conversion rate (site visitors to sales) is a respectable 3%. You can afford to pay $0.45 for a click. (3% x $15 = $0.45) Anything more… and you’re losing money.

Of course the world of pay-per-click advertising is not this simple. Some search terms convert better than others. You probably offer more than one product. There’s a lot to consider as you establish these metrics for your business.

In light of the economics of this form of advertising, if you’re sufficiently confident to proceed, you are then confronted with the issue of ad placement strategy and the mysteries of how Google determines your ad’s position. I’ll focus on Google since that’s where you’ll start.

How Does Google Determine Your Ad’s Placement?
A Google search typically produces 11 paid search ads on the first page. Three are at the top of your search results, and eight are in the right-hand sidebar.

According to Google: “Ad position on the search network is based on the matched keyword’s cost-per-click (CPC) bid times its Quality Score.”

Therefore, increase either your bid or your Quality Score (more on this later) and your position will improve.

Where Do You Want Your Ads?

Let’s break the available spaces into four groupings.

Position 1-3 — Top PlacementThese prominent positions demand a combination of a high bid and Quality Score and can be quite expensive for certain keyword phrases. Most experts suggest aiming for this top placement for your brand-related keywords, and possibly your most critical keywords.

I have actually found that impulsive clicking on these prominent ads causes some ads in these top positions to under-perform sidebar ads in conversion rates.

Position 4-6 — Best Value

Appearing at the top of the right-hand sidebar is the best value placement for the majority of keywords. The cost is less than top placement. Visibility is very good. And clicks tend to be more deliberate – producing better conversion rates.

Position 5-11 — Low Placement

Ads that appear lower on the right-hand sidebar can still perform well. Consider the fact that users will likely have to scroll to find these ads, and this will likely reduce your click-through rate. However, these clicks are probably more thoughtful on the part of the searcher since they had to work harder to find your ad.

Many advertisers place their secondary (less critical) keywords in this area.

Position 11+ — Page Two and Beyond

Don’t expect much from these ads. If you’re not willing to bid your way onto the first page (and you’ve done everything you can to increase your Quality Score), then that keyword probably doesn’t have a place in your Adwords campaign.

How Do You Improve Your Ad’s Quality Score?

Here’s what Google tells us about how Quality Scores are calculated. “A keyword’s Quality Score for ad position is based on its clickthrough rate (CTR) on Google, the relevance of the ad and keyword to the search query, historical keyword performance, and other relevancy factors.”Here are four tips for improving your Quality Score:

1. Use the keyword is your ad copy. This will improve your click-through rate.

2. Direct visitors to a landing page. And be sure that the keyword phrase on your landing page. Google generally frowns on ads that direct visitors to the home page. They would prefer for your ad to direct visitors to a page on your site that deals specifically with their search. And so would you. Your conversion rates will improve.

3. Use negative keywords to prevent your ads from showing on irrelevant search queries. This will increase your click-through and conversion rates. Adding a negative keyword to your ad group or campaign means that your ads won’t show for search queries containing that term. For instance, the negative keyword –luxury tells the AdWords system not to show your ad for any search query containing the term ‘luxury.’ Adding a negative keyword to your ad group is just like adding any other keyword. The only difference is that you put a negative sign (–) before the word.

4. Test several ads to find the one with the best click-through and conversion rates. Google makes this very easy to do and will automatically feed the better performing ad more than the others.

With the proper site preparations and understanding of your cost tolerances, pay-per-click advertising can be extremely effective. Monitor your results carefully, and expect to adjust your bids to achieve an optimal ROI.

This entry was posted on Friday, September 28th, 2007 at 1:33 am and is filed under Web Marketing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.