It’s been a couple of weeks since Google announced that they were granting themselves permission to effectively double your daily ad budget on AdWords. The announcement read:
“Internet traffic is like an ocean. Some days, there will be small waves. Other days, there will be great big ones. So, if your ads don’t show up much because of low traffic, then we’ll make up for that by showing them more when traffic’s higher.
That’s why we allow up to 2 times the clicks in a day than your daily budget allows. This is called overdelivery. And it’s a good thing: if we end up showing your ad too much — to the point where you accrue more costs than your daily budget allows for over a billing cycle — then we’ll give you a credit for those extra costs.”
Sounds pretty great right?
Google, in their altruism (and crystal ball), won’t use this as a mechanism to increase the bids of advertisers by playing them against each other but rather work with the lone goal of making sure that you, the advertiser, get the best possible value and clicks for your dollar.
Of course, this assumes that you are incapable of making your own decisions about how you want your own campaign spend structured. But that’s another story.
For those who couldn’t tell, I’m not any type of fan of this change. To provide some balance I asked PPC expert David Szetela to give me his thoughts to illustrate the other side of the coin.
But first, let’s look at why I view daily budget doubling as total rubbish.
Can We Really Trust Google?
What Google is asking us to do as advertisers is trust them.
We need to trust that if a scenario occurs that would pit Google’s interests against ours that they will act in our interest.
I don’t know about you but I rather trust myself to have a stronger interest in protecting what I want than I trust Google.
Let’s consider for a moment two advertisers named Larry and Sergey who sell blue widgets. Larry bids $2/click with a daily budget of $200 where Sergey bids $1.99 but has a daily budget of $100.
For our purposes, we’ll assume there are other advertisers bidding lower than Sergey. Let’s say the next highest bid is Sundar at $1.80/click and that all else is equal.
With Google allowed to double the daily budget rather than Larry hitting his limit at 100 clicks (or 120 with the old 1.2 multiplier) he could now be bidding up to $2 per click up to $400/day (for 15 days at least).
Now – that might not seem like a big deal … in the end Larry is still paying about $4,560/month right (at 30.4 days per month).
But that’s not where the evil is.
In Position 1, you would be expected to get 34 percent of the paid clicks and in Position 2 it drops to ~24.5 percent.
Now let’s think about what would happen to Larry’s bids through the day in these scenarios and let’s say there are unlimited paid clicks available:
- With a $100 daily budget and paying $1.81/click (one cent above the next highest), Sergey will get ~55.25 clicks. His budget is then exhausted for the day.
- During the time Sergey is in the auction Larry is paying $2/click after which he is paying $1.81/click. With his daily budget and factoring for click share, Larry would be paying the full $2 for 75 clicks and it would then drop to $1.81 meaning in total for the day he would get ~102.62 clicks.
- With Sergey’s budget able to double Larry will be paying the full $2/click for all the clicks he receives (dropping his total daily click volume down to 100 for the day). What’s more – since Larry’s budget can also up to double and since Larry will be in the higher position and thus receiving more clicks, Google would want to push Larry’s budget to a multiplier of 153.34 percent. What this would do is see Larry paying $2/click up until Sergey’s budget runs out and then drop both from the bidding having maximized the revenue from each and leaving Larry in the auction for more days rather than drop his bid to $1.81, and then simply waiting for a new advertiser to join the race and help keep the budget up once Larry is out for the month or Larry increases his total spend when his ads stop running.
Basically, this is a war of fractions.
If Google can eke out 0.1 cents more per click, they will generate almost $87 million more per year. The downside is – we’d get less clicks for our budget.
But that’s not the only reason I hate this new “feature.”
What Happens When …
Your budget is exhausted and you still need ads out there?
This is a very real possibility in November with several important days for PPC advertisers at the end of the month, including Thanksgiving, Black Friday, and Cyber Monday.
So with a multiplier of only 31 percent (just slightly above the 20 percent Google gave themselves previously), your budget could be exhausted before Black Friday.
We know clicks will be high through the month as we head into the holidays – they always are with people looking up gift ideas and figuring out what the Black Friday and Cyber Monday deals might be.
So you might well be in the auction for this preliminary stage but what will be left of your budget when the actual shopping days are upon us? Guess you’ll just have to add some new budget into the mix after your initial one is used up.
Who could have seen that coming?
What We Can Do
One of the key areas I’m personally watching and will be making adjustments to through November and December is making our own manual adjustments to daily budgets.
To ensure that the full monthly budget is allocated when I want it to be (which for some clients will be toward the end of the month), we’ll be dropping our daily bids through the earlier portion of the month and then increasing them toward the end.
Basically, we’ll be forcing the system to respect what it used to be to make sure our clients have the budget they need, when they need it, without simply throwing more money at it.
More on why this might work out in our favor below.
And Some Balance
I know I promised some balance. To get that I asked Szetela, owner of FMB Media, to provide his thoughts on the change knowing he disagreed with me. Here’s what he said:
“There’s no dispute that search query volume fluctuates from day to day. Traditionally AdWords advertisers have set daily budgets somewhat higher than their actual desired spend cap, in order to capture additional clicks.
This is an imperfect solution, since a particular’s day’s peak available clicks can (and probably does) exceed the set daily budget.
If Google can truly spend more, automatically, to capture peak daily clicks, then I’m all for it. Especially since Google has said that the excess spend will go to clicks from people that are more likely to convert, if the advertiser is using one of AdWords’ automated bid management strategies like CPA targeted bidding.
Besides, all of our clients expect us to manage to a monthly budget, and don’t care about fluctuations in daily spend.
If Google’s right, we should expect an increased number of clicks and conversions within the month of November – I’m guessing an average of 10-20 percent more.”
It’s Not All Bad …
There is a silver lining. Those who are aware of what’s going on will have a huge advantage over those who aren’t paying attention or don’t understand what this change really means.
So let’s look at an example of Larry, Sergey, and Sundar above and I’m going to add in me, dropping my daily budget early in the month and increasing it later on.
During the earlier part of the month when Sergey is seeing his budget double and Larry is doubling for much of it, I’d be non-existent for a lot of the day but then coming in below Sundar in #2 once the higher bidders are gone and with my lower daily budget there’s a good chance I’ll still get the clicks I want (with proper bidding, ads, etc.)
Then, toward the end of the month, I’ll be increasing my daily budget (directly or through the creation of a new campaign), which will allow my ads to appear throughout the month without the risk of going far over the monthly budget I wanted and in fact, taking advantage of the issues discussed above that others will experience.
How to Tell Who’s Right?
We have the battle of the Dave’s here. I believe this is bad while Szetela believes advertisers will come out ahead.
We’ll know in a few months who’s right.
If you’d like to keep score, what it will break down to is:
- Did your average cost-per-click and cost-per-acquisition go up or down?
If you got more clicks for less money, then Szetela was right. But if you got fewer clicks and costs went up, then I was right.
As I’m sure is pretty clear, I’m expecting a very nice Q4 report for Google. Might be time to hedge your bets and invest in Google stock before the quarterly reports come out to help buffer for the additional click costs.