New AdWords Formula: Better quality, or more profit?

New AdWords Formula: Better quality, or more profit?

AdWords CPC Google

There’s a change coming to the way that Google currently chooses the position of your ad in the pecking order. The whole post makes confusing reading and I’d recommend reading it a couple of times.

It’ll be interesting to see how it pans out. Right now, the placement of your ad is not just based on how much you bid for particular keywords, it is also based on a quality score (relevance of your ad and landing page to the keywords, and the Click-Through-Rate). This means that when someone searches, they are more likely to get the most relevant results – damned good practice, I think.

So, the current calculation is a mix of quality score the average cost per click that you paid. The post correctly points out that how much you pay is defined by all the other advertisers around you, something over which you have no control. I guess the easiest way to explain it is that if your average CPC is £1, and another advertiser averages £1.10, their ad will appear above yours, even though you might have set your maximum bid to £3.

In addition to the quality score, the proposed change will be based on your maximum CPC, not your average. This appears to me to be a good strategy to increase the average CPC. If ads are placed higher based on maximum CPC, surely advertisers will just increase their maximum CPC? In turn, this will increase the average CPC.

And Google’s profits. Watch this space.

Inside AdWords: Upcoming change to the top ad placement formula
The key change to the formula will be how we consider price. Today’s formula considers an ad’s Quality Score and actual cost-per-click (CPC). The improved formula will still heavily weight Quality Score, but instead of actual CPC, it will consider an ad’s maximum CPC. Here’s why:

Actual CPC is determined, in part, by the bidding behaviour of the advertisers below you. This means that your ad’s chance of being promoted to a top spot could be constrained by a factor you cannot influence. By considering your ad’s maximum CPC, a value you set, you will have more control over achieving top ad placement.

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