One question which is regularly asked to any PPC consultant when managing Google AdWords PPC campaigns is whether ads should be set to rotate or optimize.
Google's default setting is "optimize," so if you have multiple ads in one ad group, your better performing ads (generally those with a higher CTR) will be shown more often. This might seem great -- you will automatically receive the maximum number of clicks for your ads. But the more experienced PPC advertisers out there will know that clicks are not generally considered a good measure of success. Instead, conversions -- sales, leads, sign-ups, downloads and other desired outcomes -- are generally considered better measures of PPC performance.
So to aid acute PPC advertisers like Shaun Livengood from PPC Without Pity, who like to optimize ads based on conversions, Google have provided another option in AdWords called "rotate." Rotating ads allows PPC advertisers to override Google's default "optimize" setting and force all ads in an ad group to be shown equally.
Since each ad in an ad group is given the same number of impressions, data-hungry PPC advertisers are provided with a plethora of unbiased comparative ad performance data they can work with. Ad performance analysis becomes considerably easier if all ads in an ad group have the same number of impressions.
I too am extremely data-hungry and a big fan of post-click PPC analysis, so I have always tended to set ads to "rotate" to satisfy my craving of juicy PPC data.
But now I'm not too sure. Rotating ads could be detrimental to profitability.
Because by rotating ads, you are accepting a lower Quality Score and a higher average CPC in exchange for better analysis data.
Let me explain with an example.
Suppose you had two ads in an ad group (ad 1 and ad 2). Ads were set to rotate, so each were shown an equal 3,000 times over the month. Ad 1 was the best performing ad in terms of CTR (3.0%), delivering 90 clicks over the month. Ad 2, with a CTR of 1.0%, delivered only 45 clicks.
- Ad 1: 3,000 impressions, 3.0% CTR, 90 clicks
- Ad 2: 3,000 impressions, 1.5% CTR, 45 clicks
Now let's look at the totals for the ad group. From 6,000 impressions on both ads, 135 clicks were delivered at an average CTR of 2.25%.
Ad Group Total: 6,000 impressions, 2.25% CTR, 135 clicks
Now let's consider what would happen if the ads were set to optimize, where Google chooses which ads to show based on their CTR. We know that Ad 1 has a considerably higher CTR than Ad 2, so to increase their advertising revenue, Google would choose to show Ad 1 more often. Ad 1 gets 5,000 impressions; Ad 2 receives 1,000.
- Ad 1: 5,000 impressions, 3.0% CTR, 150 clicks
- Ad 2: 1,000 impressions, 1.5% CTR, 15 clicks
Look at what happens to click volume for the ad group. Since the ad with the higher CTR is being shown more often, more clicks are being delivered. For the 6,000 times both ads were shown, click volume has risen from 135 to 165 -- an increase of 22%.
Ad Group Total: 6,000 impressions, 2.75% CTR, 165 clicks
Average CTR for the ad group has increased from 2.25% to 2.75%. Setting the ads to "optimize" has delivered 22% extra clicks for no extra effort.
But as we pointed out earlier, clicks rarely matter -- it is conversion volume which is more often considered a measure of success. Those extra clicks may just be increasing my costs for no improvement in conversions! Aren't I better off deciding myself how often my ads get shown?
The Importance of CTR
Google loves relevancy. They want their user experience to be as great as possible, and they reward PPC advertisers who provide highly relevant ads. They do so with a Quality Score metric, scored out of 10.
CTR is the most important measure of Google's Quality Score, so the higher your CTR, the more likely searchers (and Google) think your ad is highly relevant. The more relevant your ad, the higher your Quality Score.
All other things equal, a higher Quality Score means a lower average cost-per-click (CPC) price or a higher ad ranking.
So back to our analysis of rotate vs. optimize ad settings.
- Rotate had a CTR of 2.25%, and delivered 135 clicks
- Optimize had a CTR of 2.75%, and delivered 165 clicks
Since our optimized ads have a 22% higher CTR than our rotated ads, it is fair to say they will receive a higher Quality Score, perhaps an 8 instead of a 7. If ads were shown in the same average position, it is also fair to say that the optimized ads (with a higher Quality Score) will have lower cost-per-click prices, perhaps by 10%.
This means that by setting ads to rotate, you are accepting a lower CTR, lower Quality Score and higher CPCs for better quality data.
The PPC Manager's Dilemma
Any PPC Consultant faces this dilemna. Now here's the question: Which is better?
- A higher CTR, higher Quality Score and lower CPCs, or...
- The ability to conduct more reliable ad text analysis?
You can't have both. Setting ads to rotate is inevitably accepting a reduction in CTR, a lower Quality Score and an increase in CPC prices, but allowing for more insightful ad text analysis. Setting ads to optimize is delivering extra visitors, each at a lower cost, but at the expense of meaningful comparative ad text data.
Supporters of the "rotate" setting might suggest that if ads are optimized regularly based on CTR, it is possible to increase Quality Score over time. But however regularly ads are optimized, there will always be a loss in potential CTR and an increase in CPCs during the testing period, where your low CTR ads are shown instead of those with a higher CTR.
Of course, it is generally more important to optimize ads based on conversions, rather than just CTR. But unless you can be sure that one ad is going to convert at a significantly higher rate than another, is it really worth paying a higher price just so you can conduct better ad text analysis?
To rephrase the question as a common scenario which often faces PPC managers: Which is better?
- $100,000 in profit, not knowing which ads worked best, or...
- $90,000 in profit, but knowing which ads worked best?
I imagine there will be advocates of both.