So, if you have not used PLAs, can you start to use them profitably? And if you are currently running them, what changes could you make to increase profitability?

Firstly, for an overview of PLAs, see the screenshot below and also this earlier post from my colleague, who explains what they are and how she saw some great initial results from these. If you need help on initially setting up a Merchant Center feed to become eligible to show these, there are some great posts out there and a lot of in-depth info on Google Merchant Center help.

So, how to profit? A lot of early suggestions were that you throw all of your products at PLAs and let Google serve them up. Then when people click, they may buy, but you don’t pay if they don’t. But, are you losing value by throwing all of your stock at this?

Consider the following PLAs served up for the search term ‘Proform 300 Zlx Bike Exercise Bike’.

This is a very long-tail search term so, as expected, it is the same product from different retailers in each ad. Given that the price Best Gym Equipment (2^nd ad) is offering is 60% higher than the one quoted by Treadmill Fitness it could be that they are wasting time and money advertising in this way.

Now, consider the more generic search term ‘exercise bike’.

Now suddenly there is a huge difference in the products and, more importantly, prices on offer. With this generic term you have an option of what product to serve up and it looks as though GymWorld.co.uk could be taking the wrong approach.

Probably through a lack of targeting they are serving up a bike at £449, some four and a half times more expensive than the £100 model Amazon have listed. Yet Gymworld.co.uk do offer a bike at £120 which would at least be comparable to the competition in this auction and have a much greater chance of earning them a click.

So, a couple of things to think about for your product listing ads campaign:

• Do you have any items where you are guaranteed to be lower priced than your competition? If so, it may be worth giving them their own labels in your merchant account and bidding higher on these.

• Consider giving your cheapest products in each category a unique label and create a separate ad group to bid higher on these. Even if you are not the cheapest on the market, serving up your lowest priced products instead of a more premium alternative may earn you more clicks on generic search terms.

Of course, your campaign should still be optimised using the same logic as normal search campaigns – i.e. do not pay more for a click than they are worth to you. You may find though that giving special attention to your most competitive products can show more value from each click and allow you to bid more.

I’d love to hear some targeting strategies anyone has implemented with PLAs, so leave a comment.

Even experienced users of Adwords, such as agencies, make mistakes, and can cost their clients money and ultimately cost themselves accounts. It’s very rare that I’ve accessed an account, whether managed by an agency or by an individual, where mistakes aren’t being made.

But fear not! Help is at hand. Perhaps the most easy-to-understand, but powerful guide ever written on how to advertise on Adwords is now being serialised on the Epiphany Solutions Blog for the first time.

This is the first part of that serialisation. It gives an overview of what Adwords is, where it is and isn’t useful, and the advantages and disadvantages of PPC against SEO. Future parts will look at each aspect of an Adwords account, and show what you should do in order to deliver amazing results, and perhaps more importantly, why the account should be set up and managed in this way.

Why Advertise Using Paid Search?

It’s a fair question. The days of PPC being a goldmine, with undiscovered pots of gold (also known as searches with few or no adverts) have gone. It’s one of the competitive – if not the most competitive – forms of advertising that there are, and you are going head to head with your rivals.

It’s definitely not for the faint-hearted. Your advert is likely to be in the middle of a bunch of competing adverts, all vying for the searcher’s attention. Even if you get the searcher to your website, they probably won’t do what you want – many sites see only one in every hundred actually making a purchase. Is it worth paying for the 99 that don’t?

It’s interesting, then, that a properly managed account is virtually guaranteed to make money.

No seriously, I mean it. Do the sums. Assuming that the visitors to your site have a value (i.e. you make money from at least some of them), then as long as you bid less than the visitor is worth, you can’t lose money.

For example, suppose 2.5% of your visitors buy something, the average order value is £100, and 25% of the order value contributes to profit. Each sale is worth £25 to you, and so each click is worth £0.625 to you (since every 40 clicks generate one sale, which is worth £25 to you).

So if you only pay £0.50, you will make money. Of course, if 30 other advertisers are all making £5 from each click, they are all going to outbid you, pushing your advert down into the nether regions, and you’ll get very few clicks – so you won’t make much money.

Optimising Your PPC Account

This simple example highlights two of the themes that will keep repeating throughout this whole guide.

Firstly, you should be basing the amount that you bid for a keyword on the amount that the click is worth to you. This is pretty obvious if you look at the example above. But there are still many advertisers out there that view success as achieving the highest positions that they can for their budget!

Secondly, since the amount that you bid is limited by the value of the click, you should be doing everything you can to maximise this. The simplest way to do this is to maximise your conversion rate. Every click that doesn’t convert is wasted money, every click that does convert is very profitable.

There is one more critical aspect to successful account management. Adwords is an auction – if you bid more, you appear higher. However, it is not a fair auction. Google multiply your bid by your Quality Score in order to determine your advert’s position, and the amount that you actually pay per click for your keyword.

Quality Score is Google’s measure of how relevant your advert is. Google want to make sure that their adverts are as relevant to users as possible for two reasons. Firstly, if their search results aren’t high quality, users will use another search engine. Secondly, if their search results aren’t high quality, nobody clicks on them, and Google don’t make any money. And Google likes making money.

Quality Score is covered in a lot of detail later on, as it is really quite important. But for now, suffice to say that every change that you make to your account should serve one or more of the following purposes:

• Increase the volume of clicks that you are generating
• Increase the profitability of a click, either by
  • Increasing the value of the click, or
  • Reducing the cost of the click

Often these two objectives directly conflict. For example, bidding more increases your clicks, but results in each click being less profitable. A new advert may improve your click through rate, but by driving less qualified traffic. New keywords may cause a similar trade-off.

Each individual section will look at this trade-off, and how to make the right decisions, and every recommendation made will be based on improving one or both of these objectives.

Isn’t It Cheaper And Easier To Stick To SEO?

Well – it can be, and you should probably do this regardless of whether or not you do PPC, but optimising your website to appear high in the natural, ‘free’ results takes a lot of time, work and money. In the long run, SEO generally pays off, but you’ll be spending a lot of money for a long time before you get results on popular search terms. And if your competitors are also doing SEO, then you may never catch up.

Pay Per Click gives you immediate results, and unlike other forms of online (and offline) advertising, you know for certain that you’ll get results. Instead of paying for an advert that people see, who then may not even visit your site/store, with PPC you pay only when somebody walks through the door. As long as there’s a good chance of that person buying something, then there’s a clear link between what you’re paying and how much you sell.

Also, you have total control over how much you pay for your visitors, and who visits your site. If something isn’t working, you can stop it immediately, and if something’s very successful, you can do more of it.

PPC can also support your SEO strategy, showing you which keywords convert, which landing pages you should be trying to drive visitors to, and which messages appeal to the searchers. And many studies have shown that websites with both natural and paid search listings get more traffic than they would expect to achieve from the two individually – the whole can be greater than the sum of its parts.

Hope you enjoyed Part One of Google AdWords Expert — keep your eyes peeled each Friday when I’ll post the next part.

In the meantime, please feel free to comment or leave questions.

1. All of the competitors increase their bids by 50%
2. The competitor immediately below you increases his bid sharply, to move top.

The first thing to bear in mind is that the number of impressions has no bearing at all of the sweet-spot. If each position gets the same percentage of the clicks, then it makes no difference. In effect, if you double the number of impressions, you’ll double the number of clicks, the number of conversions, the cost and hence the profit, in every position. I’ve assumed that everyone has the same Quality Score here – it’s unlikely to make a major difference to the So, for the sake of simplicity, I’ve left the traffic volumes where they are. They’ll impact the total profit that you make, but not the most profitable strategy. Here’s the first scenario. Each conversion makes a profit of £100, the conversion rates are fairly healthy, and the cost per clicks are quite high.

This is the data for a typical month. The most profitable position is 5th, with a cost per click of £2.11, though 6th position is only marginally less profitable. What happens if everybody increases their bids by 50% for Christmas?

Should you drop down the results page, or increase your bids? In this case, a bit of both. Your CPC has increased from £2.11 to £2.79, and you’ve dropped a position in the search results. Here, the higher cost of staying in 5th has more than outweighed the additional conversions that you’d get there, compared to 6th. On the other hand, leaving the CPC at £2.11 would have cut your conversions by more than half (compared to staying in 5th), which would cost you more in lost profits than it would save you in terms of cheaper clicks. Note that the profit appears to have fallen here, but that’s because I didn’t increase the traffic volumes. If the traffic doubled over Christmas, your profit in 6th position would be just under £20,000. One final note here – in this instance, if the bids increased by more than 15%, the correct position to appear in changes to 6th. To make it drop to seventh, the bids need to increase by a massive 70%. Interesting, but hardly conclusive. This is just one scenario, so let’s try another one. Here, the profit per conversion is lower – £60 – and the cost per clicks and conversion rates are also much lower:

Here’s the scenario for a typical month. The optimum position is 4th, though 2nd – 6th is very flat. So it seems plausible that the impact of a big increase in bids would be greater. Again, increasing the bids by 50% for Christmas…

The results are similar to the ones in the first scenario – you increase the bid, but not enough to retain 4th position in the results. To make 5th the optimum position here, the bids need to increase by a factor of 35% – 82%. Here’s one more scenario – in this case, the profit per conversion is low – £15, the conversion rates are very high and the bids are moderate.

Again, in this example, 4th is the optimum position (I’m not suggesting that this is always the case – it’s just convenient when comparing the results from different scenarios). Once more, here’s what you get when you increase the bids by 50%.

Once more, the conclusion is a kind of half-way house. You increase your bids, but not by enough to maintain 4th position. In this case, the range of bid increases for which the 5th spot is the optimum is 38% – 159%. So what are the conclusions here? In all of these cases, an increase in bids of 50% led to the sweet spot dropping by one position. But this isn’t the whole story – an increase in bids of 30% would have resulted in the sweet spots in the last two scenarios remaining in the same place. And an increase of 100% would have led to the first two sweet spots dropping by two places. So, to a certain extent at least, the impact on your optimum bid depends on your particular circumstances. However, there are two conclusions that are true in every scenario I could think of:

1. You should never reduce your bids.
2. You should never move further up the search results.

So your new bid is bounded by two values, the amount required to retain your old position, and your old bid. At what point between these two values you should set your bid depends on individual circumstances. One further point here – if you see the conversion rate increasing in the run up to Christmas, then there is clearly scope to increase your bids, and possibly your position within the search rankings, as the value of a click increases. Similarly, if your average order value increases, then your clicks become more valuable, in which case you may find your sweet-spot moving up. At the start of this blog, I asked two questions. All of the work so far has been based around a scenario where everyone increases their bids. But what happens if only one competitor does. If their increase doesn’t affect your position (they were above you before they increased their bid, or below you even after increasing their bid) then it makes no difference at all. Your sweet spot will not change at all, barring very unusual circumstances. If they move above you, then there are two possibilities – you can either increase your bids to retain your old position, or you can leave your bids alone, and drop one place in the search results. No other option makes any sense, if you think about it. Regrettably, there is no absolute answer to this one. However, in the vast majority of cases (including the three from earlier) the correct decision is to leave your bids where they are, and drop down one position in the search results. The company that has made this decision has made their campaign less profitable, as well as a number of other people’s campaigns. All of which leads to the conclusion hinted at in the title of this blog. Whenever competition on keywords rises, and people start a bidding war, Google makes more money from PPC. But then, Christmas is all about giving, and not receiving…

Suppose you’ve been paying £0.50 per click, and making some money, you figure that since a click is worth £1 to you, increasing your bid to £0.70 would be worthwhile. So, you increase your bids, you move from 5th to 4th in the results, and get 120 clicks instead of 100. Job done, and all is well with the world. Erm… no… You are now paying £84 instead of £50, and getting 120 clicks instead of 100. That’s £34 more, for 20 more clicks, or £1.70 for each additional click! Which is more than they’re worth. The extra clicks each cost you £0.70, but every other click (that you were going to get anyway) has cost you more, and so you have to include this extra spend in your calculations…

The only way to use this sort of approach is to look at the cost per additional click, rather than the overall cost per click. When the cost per additional click reaches your breakeven point, you have reached your sweet spot – this is, in fact another way of calculating the sweet spot. Right then, example time…

Take the above example. Clearly, since the additional clicks would cost £1.70 each, you don’t want to do that. In fact, it was such a bad idea, you probably want to go the other way…

You reduce your CPC from £0.50 to £0.45, and the clicks falls from 100 to 95 per day. Instead of spending (£0.50*100) = £50, you’re now spending (£0.45*95) = £42.75. A quick sum tells you that the clicks you just ditched were costing £7.25 for 5, or £1.45 each. Too expensive, so you should move your advert down.

So you try £0.40, and now have 85 clicks. Another quick sum, and you can see that the clicks you have got rid of were costing £0.88. You were making money on these, so you should keep them. And so you have your sweet spot.

To prove it, here’s the profit you would be making in each position:

This is a quick way of telling whether you are in your sweet spot, and whether the change that you just made was a good one or not… Since you can see on your campaign summary how much you spent, and how many clicks you got over a specified period, so you can certainly get a quick and easy answer to whether your latest change worked, without having to do lots of sums…

1. The higher your advert appears, the more clicks you will get (always true)
2. The higher your advert appears, the more you pay per click (always true)
3. The higher your advert appears, the lower your conversion rate will be (usually true)

Obviously, the text of your advert has an impact on all of these, but for the purposes of this blog, we’ll assume that you have a single advert. Cost per conversion is generally a good measurement of the effectiveness of your campaign , it would be nice to analyse profit, or even a ratio of cost:demand, but unless you’ve got the tools to do this, the best you are likely to get is cost per conversion. Cost per conversion can be calculated by dividing the cost per click by the conversion rate (conversions per click). Since we’ve stated that higher positions have higher cost per click AND lower conversion rate, it must therefore be true that the higher your ad appears, the more you have to pay per conversion. So if your objective was to minimise the cost per conversion, or maximise your return on investment (which is pretty much the same thing if you don’t know your conversion value), then the simple answer is that your advert should appear last! But that seems a bit silly, so perhaps this shouldn’t be your objective after all¦ Clearly, it’s better to make a £1 from 100 people that to make a £5 from one person. So, from a purely analytical perspective, maximising your ˜profit’ has to be the way forward. If you are advertising for other reasons, such as raising brand awareness, then you may be willing to make less profit, in order to be seen by more people , but even so, the rest of this document is still important, so don’t leave yet! The problem with profit, as I’ve already intimated, is that unless you know your margin and order value, you can’t actually calculate it. And what if you are generating leads? They don’t have a value or margin, do they? Well, you can’t calculate it exactly, but you need some kind of idea what you will make from a conversion, or you’ll never be able to tell what the ˜best’ position is. In a nutshell, how much can you pay for a conversion, and still break even? If you can’t put a figure on this, you need to think hard about what you are actually trying to achieve with the campaign , it can’t be to make money! I’ll assume that you’ve got a number , it doesn’t need to be exact, even a ballpark figure will be adequate for identifying your sweet spot. What else do you need? Well, we’ve said that the conversion rate increases as you move down the results, and that the clickthrough rate and cost per click fall. You need to put numbers to this. Something along the lines of:

etc Don’t use the numbers above, I’ve just made them up, and they will be different for each campaign, and probably even each adgroup or even each keyword. Again, these will have to be estimates, but by looking at the performance of keywords over time you can get some idea. If you really get stuck, change your cost per clicks every day or two for a few weeks, and get estimates that way. Once you’ve got this table, calculate the cost per conversion (by dividing the cost per click by the conversion rate). Subtract this from your approximate income per conversion (take into account the cost of the goods/services!), and you get the ˜profit’ per conversion. So for the above figures, with product that retails for £150, with a cost to you of £75, the results would be:

etc As mentioned earlier, this will always increase, as you move further down the rankings. It should also level out quite quickly , the cost per click for 11th and 20th are usually reasonably close together, and clickthrough rates won’t vary too much either¦ Next, multiply this by the conversion rate (to get the profit per click) then the clickthrough rate. This will turn the profit per conversion into the profit per impression. Multiply this in turn by the impressions per day (or month or year) to get the profit over that period. Here, we’ll assume 1000 impressions per day.

You can multiply this by the number of impressions, in order to get a daily profit/loss for each position if you like, but in terms of finding the sweet spot, this isn’t really necessary. So, in the above example, the sweet spot is 4th, though any position below fourth will also show a small profit (as the income for each unit sold will always be more than the cost below this point). Is all this work worth it? Perhaps not, if you are in fourth position, and haven’t got the budget to move into first or second , but the general rule is very useful. If you lower your bid, you’ll get fewer conversions, but each one will cost less, and if you raise it, you’ll get more conversions, but each one will cost a bit more. What you will find, is that there are few situations where the top position is the most profitable , even if your site converts better than your competitors, your advert has a better clickthrough rate, and your margin on sales and average order value are better, you are still relying on them to do the same calculations that you have , otherwise they could be bidding over the odds, and competing with them just means that you lose money, they lose money and Google gets richer!

In the first case, the sweet spot is in fifth place (profit = £26), and in the second case, it’s eighth (profit = £10). But in both cases, the Cost Per Click is the same. This is because the optimal cost per click has nothing whatsoever to do with the number of clicks or conversions that you get – it’s purely dependent on the conversion rate, cost per click and the profit (exc. the ad cost) you make on a sale. And these things are totally independent of where your advert appears in the search results. It’s not that surprising really, if you think about it. If your cost per conversion is lower that your profit per conversion, you make money – otherwise you don’t. And cost per conversion can be expressed as cpc/conversion rate. Since the conversion rate is (usually) unaffected by result position, then a cpc will be profitable or not irrespective of your position in the results. One interesting implication of this is that it answers the question – “what should I do if somebody jumps above me in the search results?”. The answer is of course (!) that you should do nothing, and accept the reduced profit (my blog on the numpties makes a lot of sense, doesn’t it!). In summary, ignore what everyone else is doing – work out the right bid for you, and stick to it.

Here’s what’s happening. Picture the scene , a big company decides it’s time to advertise on Google, so they call up their analytical people, and ask them to make it happen. Perhaps they call a few PPC agencies to get some quotes, perhaps they don’t, but either way, they decide to do it themselves (how hard can it be?). They read up on Adwords, maybe even do the Google exam (or maybe not) and launch themselves into it. So what happens next? They work out how much they have to bid to get to the top of the search, and bid that. Maybe they get their wordy people to write some adverts, and away they go. Needless to say, they are losing money more often than not. But why should the rest of us care? They’ve got plenty of cash, and if they want to give it away, let them. Maybe this was true in the past with poor advertising campaigns , after all, if a big retailer puts a bad advert on the TV, or in a magazine, it doesn’t affect anyone else. But this is PPC , and the whole concept is based around an auction. If you’re paying £0.50 per click, and appearing fourth, then somebody else appears and pays £5 per click to appear first, you’ll drop down to fifth. And get less clicks. And make less money. And if you’re an agency, working on behalf of a client, all they know is that they are getting less traffic, making less money and their rival is top of the pile , try explaining to them that you know what you’re doing and the competition don’t. Suddenly everyone’s under pressure to increase their bids or lose traffic , and every time somebody increases their bids, they make the whole problem worse. It’s called inflation, and as long as there are have-a-go companies jumping onto the PPC bandwagon, it’s here to stay. The solution? There isn’t one, really. You do the maths, and stick to your sweet spot, and accept that your campaign has just become less profitable. Now imagine if you will, a world where everyone does the maths or hires a good agency to do the sums for them (and, believe it or not, most agencies don’t bother, they just guess). Suddenly, everyone is paying according to their site’s conversion rate , the more likely your clicks are to convert, the more you can afford to pay. So the sites that most closely match customer requirements win, and the ones that don’t, lose. The customer is happy as they are finding what they want, Google is happy, because it delivers relevant results, agencies are happy, because they can compete, not with unlimited budgets and silly bids, but by optimising the campaigns better. Everyone wins, except the people with poor websites or uncompetitive prices. Will this ever happen, or is this just a dream? I’d like to think that one day it’ll happen. Google are trying to make it clearer how the whole thing works (whilst not leaving their processes open to abuse), and over time, I think that people will learn to use this new medium. But it won’t be soon. There are still agencies out there that take the money and do nothing in return, and agencies that simply don’t understand well enough how to make campaigns truly successful. So, for the time being at least, we’ll just have to keep explaining to customers why, contrary to intuition, top of the table is not the best place to be.