Look at conversions per impression instead of click-through or conversion rate

The big beef most people have with Google’s “Optimize Ad Rotation” option is that it optimizes for CTR instead of for conversions. Google gets paid from clicks, so they are naturally more interested in maximizing clicks. Since conversions are more important for advertisers than clicks, many professionals set ads to rotate evenly so they can manually pause under-performing ads based on conversion rate.

There are three possible dangers with choosing winning ads based on conversion rate:

1. If you don’t make it a regular habit to actually pause the losing ads, you’re better off letting Google optimize for you. It is better to optimize based on a suboptimal factor than not optimize at all. I’ve seen too many accounts where an ad losing on both CTR and conversion rate was rotating evenly for months all because the advertiser wanted more control.

2. Even if you are diligently optimizing ads for conversion rate, you may be missing out on profit. For example, which of these two ads is better:

1.5% CTR and 5% Conv. Rate
or
3% CTR and 3% Conv. Rate

If you are “smart” and picked winning ads based on conversion rate instead of CTR, you would have missed out on additional conversions. Even with the lower conversion rate, the second ad is bringing in more conversions due to the higher CTR.

3. Google makes money based on effective cost per thousand impressions (eCPM). The more clicks you get per thousand impressions, the less you’ll pay per click. That being the case, choosing an ad with a lower CTR and higher conversion rate will increase your bid prices and could lower your profitability. Once you pause the ad with the higher CTR, your bid prices (and CPA) will start to increase.

The ultimate advice: Look at conversions per impression (# Conv / # Imp) to pick winning ads. This metric factors in CTR and conversion rate and will tell you which ad will give you the most conversions over time. If the losing ad has a much higher CTR and is only slightly losing based on conversions per impression, make it the winner since the clicks will be cheaper. All things being equal, doubling your CTR will halve your cost per click.

Watch your conversion rate as you raise bids

What happens when you raise bids? Your ad moves up higher on the page, right? Yes, but there are often unintended consequences if you are bidding on broad match terms. By raising your bids, you will start to show higher for an increasing number (and decreasing relevance) of broad match keywords. Essentially, the more you bid, the worse your traffic can become if you’re not careful.

As you raise bids, keep an eye on your search query report and/or automatic placements. Add irrelevant non-converting keywords and sites as negatives to clean up your traffic. If the profitability of your broad match keywords is becoming a problem, you may also consider bidding separately for broad matches.

Bid by match type within ad groups

By default, Google allows you to set a bid on either the entire ad group or on individual keywords. You should bid at the keyword level when individual keywords have enough traffic for you to make reasonable bid decisions. Most keywords in an ad group, however, likely won’t have enough clicks to make a statistically sound bid decision in a reasonable time frame.

While Google only provides tools to manage at the keyword or ad group level, there is an “in-between” level where it often makes sense to manage bids: match type. The idea is to group keywords within your ad groups by match type and manage bids based on how that match type is performing. Typically broad match keywords do the worst, phrase match performs adequately, and exact match delivers exceptional performance.

I am not suggesting that you create separate ad groups for each match type. Instead I am suggesting that you recognize match type subgroups of low-volume keywords within your ad groups that perform similarly. Then change the keyword level bids together for keywords in each subgroup.

If you manage at the ad group level, you are managing the average of the match types. By bidding according to match type performance within an ad group, you will often gain a profitability boost. It takes some extra work to find keywords stats by match type (think pivot tables in Excel), but it is worth the effort when competition is high and profitability is a moving target.

Again, keep in mind that if a keyword has enough click data to manage individually, you’ll do just that.

Don’t launch campaigns until they’re fully optimized

Both your quality score and competitor bids are factored into the price of your AdWords clicks. Once your keywords and ads have a good history, CTR is the biggest factor in quality score. Before you have any clicks, however, your quality score will be hugely impacted by how Google predicts you will perform. First impressions can be hard to overcome. Here’s a checklist for getting good initial quality scores.

Have any other non-obvious AdWords tips? Let’s hear ‘em in the comments below.

1. Set a low daily budget

If you can get a few conversions a day with a $100 daily budget, shouldn’t you just be content?  If you raise your budget, some crazy clicking event may bankrupt you.  Better to set your budgets low, then you’ll never have to worry about whether or not you can pay your PPC bill.

Yes, a worse-case scenario would also involve more traffic to your site and likely more conversions.  But what if the extra traffic doesn’t convert?  Play it safe: decide how many conversions will make you happy and set your budget accordingly.  You won’t be able to take advantage of news-driven spikes in traffic, but what you don’t know won’t hurt you.

2. Don’t bid on keywords where you rank well organically

PPC should never be allowed to steal from SEO, even if it brings you more total traffic and makes you more money.  You probably have pretty good organic listings for some keywords, especially your own brand name.  This is free traffic.  You spent a lot of time on SEO and now’s your chance to reap the rewards.  It would be stupid to pay Google to have your ad listed in the search results when you are already there organically. Besides, “nobody” clicks on search ads. Google’s billions in annual revenue from paid search is just an anomaly that you should ignore.

If you were to bid on your company name, many people would click on your ad when they would have clicked on your free listing. Others are trying to grab all the profitable traffic they can get, even if they have to pay for it.  Instead, why not just be happy with the money saved.

3. Stick with your current sales funnel

Are you currently making sales from your website?  If it ain’t broke, don’t fix it.  Too many people are discontent with their conversion rate and are always trying something new to get more conversions.  There are so many things that could go wrong when you mess with what’s working… I go crazy even thinking about it.

Yes, if you had a higher conversion rate you could afford to increase your bids to get more traffic.  Testing new landing pages, however can sometimes actually lower the conversion rate.  Besides that, technical problems may arise when adding new pages, sometimes effectively breaking your website.  So don’t mess with a working website that converts.

4. Don’t bid on competitor keywords

Big companies spend a large portion of their marketing budget on branding campaigns in hopes someone will search for them directly by name, land on their website and purchase a product.  You can understand their frustration when another company stands in at the last second to take the sale.  That’s why many PPC advertisers play nice and won’t bid on competitor brand terms.  If you don’t like risk, this is the route you should take.

It doesn’t matter that some of your cheapest conversions from highly qualified traffic will likely come from competitor terms, or that your competitors are probably bidding on your brand name.  Play it safe: competition is good so long as competitors don’t get mad at you.

5. Set bids low enough to leave a healthy initial profit

Once the initial sale takes place, there is only one thing that is certain: the initial sale.  Why pay more for clicks than you can easily pay for with front-end sales.  Additional sales to your customers may or may not happen.  Past performance is no indication of future returns.  So if you can’t make a sale, pay your PPC bill, and still have a healthy profit margin, you need to lower your bids.  Any extra sales to your existing customers are gravy.

In fact, some high-spending companies actually plan to lose money on the initial sale.  That’s why they can afford those outrageous bids at the top.  Surely they are setting themselves up for disaster if those “future” sales don’t pan out.  Not you.  You’re safe with an average position of 6.  Who needs a backend when you’ve got a good front-end?

Take these suggestions if you don’t like to upset the apple cart.  If you’re a contrarian and think you can increase your PPC campaign’s effectiveness, read the converse view: 5 Calculated Risks to Strengthen Your PPC Advertising.

It is common to spend hundreds of dollars testing new ad groups before you have enough data to finally pull the plug or drastically lower the bids on under-performers. Split testing ads is also slow going if you’re of a mind to choose a winner based on conversions, but you’ve “peeled-and-sticked” to the point where getting 20-30 conversions for each ad takes months in most ad groups.

Refresher: “peel and stick” refers to the method made popular by Perry Marshall where you “peel” a keyword from one ad group and “stick” it into a new one to write a more targeted ad.

Yes, you want to keep tracking sale conversions in AdWords, but have you considered tracking a pre-sale conversion as a leading indicator for sale conversions? If your landing page is targeting an email opt-in, this is the strongest candidate for pre-sale conversion tracking. There are other possibilities as well, such as a view of a key page on your site, like your order form.

Sounds risky…I prefer tracking sales

I’ll go into the risks & remedies later, but at this point you may be thinking, “Whoa… wait a minute there — are you asking me to disregard all my sales conversion data in AdWords and start tracking an activity that may or may not lead to a sale?”

No. Sales conversion data will still be available in AdWords reports. But if you start tracking an action which has a strong correlation to actual sales, you will gain tremendous optimization speed with little risk in hurting sales. All the risks can be guarded against, but the speed and efficiency rewards can happen virtually no other way.

Do sale conversions rise and fall with email opt-ins? Do sale conversions rise and fall with “enter your credit card” page views? These can both be candidates for conversions to be tracked in AdWords. These “conversions” may occur 5x-50x more frequently than actual sales.

The current conversion will still show up in the “Conversions (many-per-click)” column the AdWords interface and reports, but whatever conversion happens first chronologically will get the Conversion 1-per-click spot. (Be sure you understand the 1-per-click / many-per-click distinction.)

This additional data is likely already available in your Google Analytics AdWords reports, but this read-only interface isn’t conducive to making and acting upon data-informed bid decisions. Smart decisions can happen more reliably when you conduct your analysis in the same tool where you can take action.

There is another great benefit to making this pre-sale action data available directly in AdWords – you can use Conversion Optimizer to automatically manage bids based on these conversions. If you weren’t able to use Conversion Optimizer before due to a low number of monthly conversions, you will now be able to enable this bidding strategy, which Google has shown to increase conversions.

Implications of tracking a new conversion in AdWords

As stated earlier, if you record an earlier action as a conversion in AdWords, this will show up as your 1-per-click conversion. Your existing conversion will move over to the many-per-click conversion column.

CPA (1-per-click) will no longer be the cost per sale acquisition, but cost per action… how much you paid to get someone to take an action on your site that has statistically proven to increase the likelihood of a sale. So if you are targeting a certain CPA with your bids, you will now be targeting a lower CPA.

Risks & remedies of tracking a non-sale conversion in AdWords

It is possible that certain campaigns can bring in a good amount of pre-sale actions, but bring in lower quality traffic and thus have a lower than average conversion rate on these actions to the actual sale.

The solution is to keep recording the conversion value for the sale in AdWords so you can still see true dollar worth in your reports. Run these conversion value reports in AdWords regularly so you can verify that you are bidding appropriately considering the value/cost of each ad group and keyword.

Also, before you even get started with the new conversion stat, customize your target pre-sale conversion CPA for each ad group and/or primary keyword based on sales data.

You may be tempted to optimize your funnel for the pre-sale action you are recording in AdWords instead of the actual sale. Don’t do it. At the end of the day, the success of your AdWords campaigns must still be measured in actual sales dollars.

What happens when the funnel changes? Someone outside the loop may change a page in the funnel which distorts the action to sale correlation on which your target CPA is based. For this new conversion tracking strategy to work, you need to have a reliable funnel with reliable stats. Before making bid decisions, do a reality check with your stats to make sure nothing is out of the ordinary.

You should always ensure the correlation is remaining steady before doing bid management based on the pre-sale action CPA. Make changes to your target CPA as necessary. Also, communicate to all parties involved the crucial nature of the funnel stats so you are notified of any activity that may cause a change in page-to-page conversion rate throughout the funnel.

Top candidates for pre-sale conversion tracking

While this option may work for any account, some accounts can track pre-sale conversions with the least amount of risk. Here are the “golden” accounts ripe for pre-sale conversion tracking:

• You have a defined pre-sale stat that you are already tracking with good success — such as email opt-in rate
• You have a high number of pre-sale actions, but a much lower conversion rate to sales
• You can establish a strong correlation between this pre-sale action and sales conversions
• You are frustrated with how long it takes to get enough sales in many of your campaigns and often resort to looking at pre-sales stats in Google Analytics to make an early determination as to the success of an ad group
• You get many sales from the Content Network and want to be able to use Conversion Optimizer with greater success

If you manage an AdWords account that meets the above criteria, and are courageous enough to shuffle the deck and try something new, have at it!

However, there are two hidden assumptions in the above “simple process” that can cause your bid management to be severely under optimized: Assuming all conversions are to be valued equally, and assuming you know where to edit the bids.

Tracking conversion value as expected customer value

For many AdWords advertisers, simply tracking conversions is an “advanced” tactic. High-performing marketers go a step further and also use AdWords conversion tracker to dynamically track the value associated with each conversion. With a simple modification to the conversion tracking script (and a tiny bit of custom programming), you can track the monetary value associated with each conversion. If one conversion brings in $30 while another brings in $50, both values will be recorded with their respective keyword in the AdWords reports (Google doesn’t currently allow you to see conversion value in the normal interface. The “total value” and “value / cost” stats are only available through reports in your AdWords Report Center.).

If every sale you make is a one-time sale at an identical price point, then it doesn’t provide much benefit to track conversion value. If this is the case though, you should be concentrating your efforts on increasing lifetime customer value by selling additional items to your customers.

For most businesses, however, the first sale is only a small percentage of the lifetime value of each customer. Do you know the average lifetime value of a typical customer? If not, scramble to get this value by querying your shopping cart and ecommerce data. You’ll need it if you want to take your bid management a step further.

If your initial sale is $50, but through additional sales over the course of the next 6-8 months, you average another $30 from each customer, your average lifetime customer value would be $80. Here’s where the advanced part comes in: Is every customer worth $80 to you? Or are there some customers who are worth $120, while others are only worth $50?

All customers are not created equal. The key is that you are not blind to which kind of customer you’ve just acquired. If you offer more than one product choice, your customers are segmenting themselves based upon their purchase. If you only have one product for sale, add an upsell opportunity immediately after the purchase. In addition to bringing in more initial revenue, it will also serve as a predictor of lifetime customer value.

Once you get some data under your belt, you should compute the average lifetime value for each of your customer segments. These segments may be based on the products purchased and/or upsells declined or accepted.

Next, edit your AdWords conversion tracker script to dynamically pass in the average lifetime value for the segment to which this customer now belongs. When using conversion value in this manner, your conversion tracker “value” stat becomes the estimated lifetime value for this particular customer instead of simply the value you received for that particular sale.

You’ll likely discover that some campaigns and ad groups tend to deliver higher value customers than others. Perhaps a $5 upsell actually signifies a $50 increase in average lifetime value. Having this data available within AdWords will give you new perspective into making decisions about how to better spend your money to acquire the most profitable customers.

When performing bid management based upon value instead of cost per acquisition (CPA), the stat that should now guide your bid decisions is “value / cost.” This figure, available through your AdWords reports and expressed as a percentage, represents the value you are getting (or expect to get) for every dollar you’ve spent in AdWords. So if you passed in $100 as your conversion value and you paid $50 for this sale, your value / cost would be 200% (100 divided by 50, expressed as a percentage).

After taking into account your cash flow, margin, and profit goals, decide on a value / cost you wish to target and start managing your bids accordingly—but first make sure you know where to be managing your bids.

Ad group bid management

It is likely that a large majority of your keywords are responsible for fewer than 2-3 conversions in a given month. So if you are managing bids at the keyword level, you only have enough data to make a bid decision about a small minority of keywords.

What becomes of your lower volume keywords? Typically, bids for these keywords are either perpetually ignored during cycles of bid management or a bid decision is made on the basis of only one or two conversions. This is hardly a statistically relevant sample size. Yet there is an alternative: manage bids at the ad group level so all your low-volume keywords take the default bid of the ad group.

In this manner, keywords with low traffic are managed on this portfolio level in aggregate. So while you may not have enough data on each particular keyword, when you consider the data from 20 or 30 keywords together you are much more likely to have solid ground for your bid changes.

There are tremendous advantages to this method of bid management. Your account will not only be optimized for your top performing keywords, but you will also be squeezing as much value as you can from your lower volume keywords.

Of course, this all assumes you have your ad groups structured properly. If your ad groups are made up of a bunch of keywords which target drastically different mindsets, you’ll have a very weak basis for aggregately managing bids at the ad group level.

If, however, you have a proper AdWords account structure where your ad groups are made up of semantically related keywords with the same stem keyword, you can take advantage of this statistically advanced bidding strategy—simply start managing your bids at the ad group level. AdWords allows you to give an ad group default bid which applies to all keywords in the ad group for which you haven’t specified a custom override bid.

The problem with managing bids at the ad group level, though, is that as soon as you give a custom bid to an individual keyword, you can no longer rely on the aggregate ad group statistics when making your bid management decisions. Why? Some high-traffic keywords in the ad group with custom bids would make your aggregate ad group CPA stats misleading. A custom bid could be manipulating the ad group CPA and you could mistakenly think an ad group bid needs to be changed when in fact the keywords with the default bid are doing just fine.

As such, when using the portfolio ad group bid management strategy, it becomes crucial that you only manage bids at the ad group level. This doesn’t mean you ignore opportunities at the keyword level. It simply means that if an individual keyword in an ad group begins performing differently than the rest of the ad group in terms of CPA or Value/Cost, you should pull that keyword into its own ad group where you can manage the bid more precisely.

Business success is achieved by continuously optimizing every stage of your marketing funnel. Tracking your customer value and managing bids in the most profitable manner will position your business for greatness.