#1 Myth: AdWords Is Media Placement
This is a misconception of ad agencies and clients who have done more media placement than pay per click. In media placement, you place your ad somewhere for a set fee, and that’s it. We can make analogies between that and pay per click, but it’s not the same.
If anything, AdWords is super-duper-granular media placement, because you place ads for keywords or on sites. However, the nature of the broad and phrase match types means your ad could show for a similar, not exact keyword. Expanded broad match means you could show up for a somewhat distantly related search. All of this has to be considered when creating the account structure and keywords. It’s not as neat and tidy as a single media placement.
Content network placements are dynamic as well. Your ad will show on relevant sites, and though you can exclude sites, you aren’t picking exactly which sites to show it on. Site-targeting allows you to place on specific sites, but see the next difference:
With AdWords, a variety of dynamic factors determine your ultimate spend. You can set a budget but you may not reach it, especially at first. You might find the click volume does not exist in your niche to hit your target budget. Or you may hit your budget easily and need to consider spending more after you’ve optimized for better ROI on that initial spend.
Ongoing optimization affects click volume and thus spend. The rich data you get back informs you how best to proceed next. This is better than just putting up an ad and hoping it works.
Along those lines, AdWords is better because it enables granular conversion tracking. Sure, you can track a media placement with a vanity URL and your web analytics package or with call tracking, but you can’t subdivide the readers or optimize the placement. In other words, the ROI you get from a media placement can’t be changed- but AdWords’ granular tracking allows you to shape, hone, optimize for better ROI.
If a media placement’s ROI is bad, you’re out of luck. With AdWords, you may be able to optimize it to an acceptable, if not awesome, level.
#2 Myth: AdWords Is An Auction
For some reason, even six years after AdWords changed the PPC auction model, some people still think winning at AdWords is all about bidding the highest cost per click (CPC). Since 2002, AdWords has been more sophisticated than the old Overture auction model. So keep in mind, if you talk like AdWords is an auction, you sound extremely out of touch.
The fact is, AdWords ads are positioned based on a variety of factors. Your bid is only one of those factors and not the most important one. I’ll explain what happens when you try to get a #1 position and don’t deserve it in the next myth. But your position is determined more by the relevance of your ad to the keyword search and by the click through rate (CTR) that ad receives than by your bid. Certainly, your bid has to be high enough, but that’s all. In reality, independent studies have shown that the CPC paid in different ad positions is not remarkably different, especially on the side of the search results page- in the end, it’s mainly your CTR that determines your position.
#3 Myth: That #1 Position Is Best
Some advertisers can’t get the misconception out of their head that #1 is best. Without debating whether the people who click on #1 ads are more qualified or just window shoppers (variety of results suggests to me it depends), let’s talk about results.
You should be looking at your key performance indicator (KPI), which is usually cost per lead (CPL) or return on ad spend (ROAS). If getting the number one position increases your CPC too much, then your CPL skyrockets and your ROAS plummets. And that’s bad.
Here’s what happened with one of our advertisers: They insisted we test getting them the #1 spot for two big “head” keyword in their niche. Their average CPC was about $2.34 and their average position was about 3.0. To get them to the #1 spot for these two keywords, we created two new campaigns- they wanted to spend $3,000 to test each. I did the only thing I could to boost position that artificially- I bid $100 per click. AdWords assured me the actual CPC would be the minimum needed to get those keywords (in that account with those ads) to the #1 position.
The results we got differed- one keyword was highly focused on the offering, the other was about the destination city. The focused keywords ended up costing more than $9.89 per click. So they received 330 visitors for that $3,000. The good news was that the conversion rate was high, so overall, their cost per lead was only about 5% higher than normal. However, for the more general keyword (that probably didn’t deserve to rank highly because of its lower relevance), their cost per lead was 150% higher, too high in fact to even finish the $3,000 experiment.
Lesson? Sometimes the #1 spot is worth it, but only for highly relevant keywords.
#4 Myth: Google is out to get me (or conspiring against me)
Stop watching Oliver Stone movies.
Yes, Google is naturally incentivized to make money from AdWords. It’s their number one money maker. Do they tip the scales their way? Sure, in some ways. But not so much that you can’t get incredibly good ROI from AdWords for the right offering, if you know what you’re doing.
Some warnings about what Google does in their favor:
- The Campaign Optimizer is best at increasing click volume, not at giving you relevant keywords. Make sure you’re careful and use negative keywords along with the Search Query report to show your ad to more relevant searchers only.
- The Conversion Optimizer has increased my CPL both times I’ve used it, and other AdWords managers have told me the same thing on newsgroup discussions. Because I don’t know how Google has shaped that algorithm, I can’t imagine what they’re doing wrong. I just know that manual, human conversion optimization outperforms theirs. And they make more money with it.
- AdWords looks awesome and easy to the newcomer. Google does a great job selling people on trying it, but AdWords isn’t easy to profit at. It’s unfortunate that many people don’t realize they need a consultant, manager, or coach until they’ve already wasted hundreds or thousands of dollars doing AdWords wrong.
- Even if you work with Google AdWords reps or their JumpStart program, you will have to focus on conversions metrics and conversion tracking yourself. You have to push them on that to get answers or tips.
#5 Myth: AdWords is too expensive
This is no more true for AdWords than for any advertising. If you sell pens, putting on a promotional pen parade probably won’t yield positive ROI. Placing an ad in a major national magazine probably doesn’t make sense if you have a low-margin local-only business. Some products in highly competitive niches have small margins and positive ROI is nearly impossible.
For example, if you start an online t-shirt store and your margin is $4 per sale, if it costs you $1 per click, you’d have to convert 25% of your PPC visitors just to break even. That’s a ridiculously high conversion rate you’re unlikely to achieve. AdWords ROI is just a matter of doing the math.
You can guess if PPC will make sense for you if you know your:
- Margin per sale
- The average CPC in your niche
- Your site’s conversion rate
To check whether CPC is too high in your niche:
- Break-even CPC = Margin * CR
To calculate the conversion rate you’d need to break even:
- Break-even CR = Niche Avg CPC / Margin Per Sale
I know you want to profit, not just break even, but if it looks like you might be able to break even, factor in that you’ll be optimizing and ad testing to improve those results, and you have a shot at profiting on your PPC investment.
Brian Carter is the Director of PPC, SEO, and Social Media for Fuel Interactive and The Brandon Agency. He co-founded TweetROI which is an AdWords-like Twitter advertising service.