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3 Important Things About Google Adwords And Reducing The CPC

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Google Adwords is an online advertising platform provided by Google to increase online traffic and hence have advertisers increase their sales. A successful campaign involves the Advertiser, the User and Google. The advertiser tries to formulate ads and shows them on Google, while the User sees the relevant ads for his use, while Google helps the user and the advertiser gain a good experience on Google such that both the user and advertiser use Google’s services in future and Google continues in its business. This Adwords platform makes the advertiser pay Google only when the User clicks on the relevant ads to get the information he seeks. And Google makes the advertiser Pay Per Click ( PPC ) depending on the maximum bid and the bid price of the next best Advertiser. For example, if there are 4 advertisers and their maximum bids are as follows :

Maximum Bid     Price paid to Google

1st advertiser          Rs 4                         Rs 3

2nd advertiser        Rs 3                         Rs 2

3rd advertiser         Rs 2                         Rs 1

4th advertiser         Rs 1

So an advertiser pays only the amount that beats competition and not his maximum bid, when a user clicks on the Advertisers ad. This is how AD AUCTION works. In the above example the next best bid for the 1st advertiser is Rs 3. So Google charges Rs 3 and not Rs 4 for each click on the 1st advertisers ad.

Apart from Ad Auction, QUALITY SCORE is the other important thing in Google Adwords which affects the billing of the Advertiser. Google wants advertisers to show high quality ads. The three components of quality score are Click Through Rates (CTR) , Relevancy and Landing Page quality. Google wants the ads to be relevant and useful to the users. Also, the Landing Page should have original and quality content such that users have a useful experience once the ad is clicked. After taking all these 3 features into account Google gives a quality score to the ad. The maximum bid when multiplied by this quality score would give the AD RANK. It is this Ad Rank which determines which ad is the best performing ad. And the best ads are ranked higher and the ones that have the lowest ad rank are not displayed at all. To illustrate with an example :

Maximum Bid          Quality score            Ad Rank            Best Performing Ad

1st Advertiser               Rs 4                                 1                         4              lowest ad rank so not displayed on Google

2nd advertiser             Rs 3                                  3                        9                                 2nd

3rd Advertiser             Rs 2                                  6                       12                                 1st

4th advertiser              Rs 1                                  8                         8                                 3rd

Another important thing about Google Adwords is, the amount the advertiser has to pay Google finally , that is the Cost Per Click for the advertiser. Mathematically, this is the Ad Rank of the 2nd best advertiser divided by the Advertisers Quality Score.

CPC = ( b2 * q2 ) / q1

where b2 is the maximum bid of the next best advertiser ; q2 is the quality score of the next best advertiser and q1 is the advertisers own quality score ( Also b2* q2 is the Ad Rank of the next best Advertiser ). To illustrate :

Maximum Bid       Quality score      AdRank       Actual CPC

1st advertiser                    Rs 4                         8                            32                  24/8= Rs 3

2nd Advertiser                 Rs 4                          6                           24                   12/6= Rs 2

3rd Advertiser                  Rs 4                          3                          12                    This advertiser pays the minimum price as there is no next

                                                                                                                                 bidder.

This formula ensures that if you increase your quality score the CPC reduces for the Advertiser. Thus when the 1st advertiser pays CPC as Rs 3 and if he increases his quality score to 10 ( present quality score is 8 ) , his CPC would be 24/10 = Rs 2.40 ( a cost reduction of Rs 0.60 per click ).

Hence for a successful Adwords Campaign, Bid amount ( Ad Auction ), Quality Score and Ad Ranks are the most important aspects that need your attention to reduce your costs and hence increase sales revenues and ROI.

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  • There are 2 comments


    • 3 years ago

      Mayank   /   Reply

      Very well described post on adwords. This showcases the importance of Quality score without which you cannot run successful adwords campaigns. Better quality score helps you to decrease your CPC thus ensuring better ROI. One more point quality score also depends upon the loading time of your website.

    • 3 years ago

      Indrajit Goswami   /   Reply

      What is quality score? Can you brief it here?

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