Visibility

As Google AdWords advertisers become more proficient with the AdWords system, they may find themselves losing out on valuable impressions that may drive more conversions, essentially lowering their impression share or “share of voice.” It appears that Google Ad Rank may in fact affect significantly impact impression share – thus causing advertisers to question if increasing average cost-per-click (CPC) to gain more visibility fits in their profit margins.

How Ad Rank Affects Impressions

Ad rank is the measurement that Google uses to determine ad position for each keyword. As defined by Google:

A keyword-targeted ad's position is based on its ad rank, which is determined by your keyword or ad group’s cost-per-click (CPC) bid times the matched keyword's Quality Score. To be promoted to a top position above Google search results, your ad must exceed a certain quality threshold, which helps ensure that only the highest quality ads appear in top spots.

Google tells advertisers that it determines ad rank using two primary factors:  cost-per-click (CPC) and quality score. In turn, quality score is calculated by:

• The historical click-through-rate (CTR) of the ad, the ad's display URL, and the matched keyword on Google
• The relevance of the keyword and ad to the search query
• Your account history, which is measured by the CTR of all the ads and keywords in your account

 However, what Google does not communicate to advertisers is that ad rank also can have an important impact on your impression share as well.

One of the top factors in ad rank is CPC. Assuming that the quality score remains constant, then the higher the CPC, the higher the ad rank and thus, the higher the ad position. However, it appears that Google not only adjusts ad position based on ad rank but perhaps impression share as well.

The Catch-22 for Advertisers

If ad rank does in fact affect impression share, what impact does this have on advertisers? For advertisers selling high-margin products, perhaps there is little impact. But for many advertisers, because pricing plays such an important to online shoppers, margins may be slight. For these advertisers, quantity of sales helps the business overcome low margins – margins which may even be dictated by the type of product and the marketplace for it.

If ad rank (and CPC) does affect impressions, then there’s a great chance that low-margin advertisers may find it more difficult to realize a low cost-per-conversion, high quantity model using Google AdWords.

Case Study: Online, Discount Athletic Shoe Retailer

The Problem: Low Impression Share

In the case of one online athletic shoe retailer, achieving quality results meant sacrificing possible quantity of results. Because the margins on the discounted athletic shoes were very slim, the retailer opted to focus its AdWords strategy primarily on:

1.      Very specific keyword phrases (“long tail” phrases) focused on the brand names of the shoes rather than broad keyword phrases such as “soccer shoes”;

2.      Middle to low ad positions on page one, ranging from position 4-8, which also meant a lower cost per click than higher ad positions;

3.      Small ad groups containing no more than 20 keywords apiece, each highly focused on the shoe brand name;

4.      Highly-focused ad copy containing the name of the specific shoe searched;

5.      And destination URLs pointing directly to the specific shoe on the retailer’s website.

The strategy seemed like an approach that would ensure a good quality score and ad rank. And for a time, it did. However, it seemed that the more that the retailer was able to drive down its cost-per-conversion, the less impression share it was able to achieve. Therefore, while the retailer was able to drive up quality of conversions (by driving down cost per conversion/sale), it also began to drive down the quantity of conversions as the available impressions were being lost.

The retailer began looking for ways to improve the quantity of conversions while maintaining the quality of conversions as well.  So the retailer considered increasing its budget to realize an increase in impressions, and possibly, clicks and conversions. It seemed like a natural approach.

However, upon further examination of its budget, the retailer saw that it was not even spending its fully budgeted amount for the campaign – nearly $4,000/month. Google appeared to be leaving money on the table. Why? It seemed almost counterintuitive for Google to do this. Could it be that the retailer was reaching 100% of impression share, and that was why there was left over budget?

By running an impression share report, the retailer found that, even with budget remaining to be spent, it was not receiving the full level of possible impressions for the campaign. In fact, the retailer was only receiving approximately 14-20% of the exact match impression share – even though it had plenty of budget left to spend.

So increasing the budget further likely would not achieve the retailer’s goal of increasing impressions, clicks or conversions.  So what now? The retailer began to examine improving the Quality Score for its campaign.

Because the destination URL, the keywords, and the ads were highly targeted to very specific product name terms and the quality score was rated as “great”, the retailer knew its quality score was not the culprit. But what about the ad rank?

The Strategy: Improve Ad Rank to Improve Impression Share

While the relative ad position had not changed for the keywords, what would happen if the retailer only slightly increased its CPC to see if ad rank could be improved and thus increase impressions?  As a test, the retailer decided to increase its average CPC by 30-75%, or approximately $0.10/click, for a period of eight weeks to see if the slight increase in CPC could affect ad serving and impression share. The area in the table outlined with a red box represents the data gathered during the test period:

Notice that when the total budget for the “Shoes” campaign was increased significantly, the impressions nearly doubled. The charts below show a very clearly defined point where the CPC was increased – which in turn increased the exact match impression share significantly:

By showing the ad more often, the retailer was able to achieve more clicks and, in the beginning, more conversions. Sounds good, right?

The Catch-22: Increase in Ad Rank Meant Increase in Cost Per Conversion

While the retailer was able to achieve a much higher exact match impression share with only a slight increase in CPC, the small CPC change also greatly affected cost per conversion. Because the retailer achieves very thin margins on each pair of shoes sold, cost per conversion has to be a major consideration.  For the period before the budget increase, the average cost per conversion was approximately $21.05. For the period after the budget was decreased again, the average cost per conversion was $24.47. But for the period shown in the red box, where the budget was significantly increased to garnish more impressions and clicks, the average cost per conversion was a whopping $38.03 – a full 55% higher cost per conversion than at times when the overall campaign budget was lower.  While the CPC increase seemed very small, it had a much larger cumulative impact. For this retailer, the trade off of having to raise CPC to garnish more impressions resulted in an unprofitable cost per conversion, eroding away the retailer’s already slim margins.

In Summary

The catch-22 for this online retailer, as well as many others, is that improving ad rank to improve impressions and visibility may end up really hurting your bottom line. Because Google is using ad rank to also determine impressions and ad serving, even a slight increase in CPC can really erode profit margin. So retailers are then faced with a tough choice: Do you keep CPC low and maintain your profit margins or perhaps sacrifice profit margin to increase impressions, and perhaps quantity of sales, for long term gain – banking on return customers to improve sales over a lifetime? I guess sometimes you can be more efficient than Google.