AdWords Tips

Hacking AdWords: Winning at AdWords the Weird Way

By Larry Kim January 29, 2014 Posted In: AdWords Tips Comments: 29

As search marketers, we spend a lot of time analyzing crazy SEO algorithms (hello, Panda and Penguin) and constantly trying to reverse-engineer ranking factors in an attempt to increase our organic rankings.

Yet when it comes to paid search, there's not nearly as much research, despite the fact that PPC, like SEO, is largely driven by an algorithm (Quality Score) which determines ad position, cost per click and many other factors.

By understanding how Quality Score works, AdWords can be cracked.

In my article today, I'll quantify the impact of Quality Score on your cost per click and cost per conversion. I'll also explain to you (mathematically!) how Google calculates your Quality Score. Finally, I'll share my three best tips on how to raise your Quality Scores, all in an effort to help you hack AdWords to improve your ROI.

Warning – lots of data ahead. Let's begin!

How Quality Score Impacts Ad Position

Quality Score is how Google grades the relevancy of keywords and ads in your AdWords account. It’s reported on a scale of 1-10, from awful to amazing.

Why does Google care about ad quality? It's obviously in no one's best interests to show irrelevant ads that don't appeal to users in the SERPs and throughout their network. Google only gets paid if people click on your ads, so they favor ads that people are likely to click. It's that simple.

This means that bidding higher doesn't always result in a higher position, because Max Bid is only part of the equation. Ads are ranked using “Ad Rank,” which is mostly the product of Max Bid * Quality Score (plus some other factors).

In the following figure, notice how Advertiser 1 can get the top ad spot on the SERP, even though his Max CPC Bid—at $2—is lower than Advertiser 2's Max Bid of $4.

How to Hack AdWords

Key Takeaway: Quality Score greatly impacts ad exposure. In fact, Google doesn't even bother showing ads with low Quality Scores.

How Quality Score Impacts CPC

Quality Score also plays a very important role in determining how much you're charged per click. A now famous video by Hal Varian, Google’s Chief Economist, helped clarify this point. Your cost per click is calculated using the formula: [Ad Rank of the ad below yours / your Quality Score] + $0.01. Here's an example of how this works:

Quality Score Impact

Key Takeaway: The higher your Quality Score, the greater your CPC discount. Conversely, lower Quality Scores result in much higher costs per click. Consider this a CPC tax for running dumb ads.

What Is a Good Quality Score?

If you're getting perfect 10s on all of your keyword Quality Scores, let me know, because I've yet to see this in any account. Typically, you'll get a mix. I analyzed a few hundred accounts to figure out what the typical Quality Score distribution looks like in 2013 and found that 7 is the most prevalent score.

Good Quality Score

Note that the impression-weighted Quality Score here for the average AdWords account is around 5/10. Using this information, along with some basic arithmetic and the formula for calculating CPC, we can compute the economic value of having an above average Quality Score (or the penalty of having one below average).

Quality Score Impact on CPC

Given that the average Quality Score is 5/10, the value of having a Quality Score of 10 is a discount of 50% on your CPC. The penalty of having a below average Quality Score of 1/10 is that your CPC is increased by 400%, on average. I've also included the marginal savings or cost increases for a 1-point increase or decrease in Quality Score.

It's also worth noting that over the last 5 years, the average Quality Score has drifted lower. In 2009, the average Quality Score was 7/10. Today, it's just 5/10. As a result, above average Quality Scores are worth much more than they were in the past!

Impact of Quality Score on Cost Per Acquisition

Most people doing PPC advertising are doing either e-commerce or lead generation/direct response marketing – they usually care more about cost per conversion or acquisition (CPA) than cost per click. After all, if you can turn a greater profit with a higher volume of clicks at $50 per click than $20, it makes sense.

To quantify the relationship between CPA and Quality Score, we manually compiled CPA data from several hundred WordStream client accounts, representing about $100 million in annualized spend.

We then plotted the average cost-per-acquisition (conversion) versus the impression-weighted Quality Score for each campaign. Here's what it looked like:

AdWords CPA

The data reveals that there is a very strong relationship between average cost per conversion and average Quality Score. The higher your Quality Score, the lower your CPA will be, on average.

The following table shows the impact of Quality Score on Cost Per Action (not conversion or acquisition) in comparison to the average Quality Score of 5/10.

Hacking Google AdWords

Note that if your Quality Score is below average, you'll basically pay a penalty – up to 64% more per conversion than your average advertiser. In a nutshell, for every Quality Score point above the average 5/10 score, your CPA will drop by 16%, on average. Conversely, for every Quality Score point below the average of 5/10, your CPA will rise by 16%.

It's worth pointing out that I didn't see a big difference in average conversion rates vs. Quality Scores. I found that keywords with high Quality Scores converted only slightly better than low Quality Score keywords.

Key Takeaway: Lower CPAs are primarily driven by lower costs per click, which are a direct result of your Quality Score.

How Is Quality Score Calculated?

Hopefully by now, you're convinced that Quality Score has a huge impact on most of the important metrics in your account. So how does Google calculate this magical Quality Score?

A simple plot of Quality Score vs. CTR for a few hundred campaigns reveals a pretty strong relationship between the two.

Quality Score Data

Basically, the higher your CTR, the higher your Quality Score. Yet there's still a bit of noise here by way of variance. What's happening is that CTRs vary wildly based on average position: higher ad positions are predisposed to getting much higher CTRs, and low ad positions are likewise predisposed to low CTRs.

Here's what the same data looks like when I account for different ad positions:

Quality Score vs. Position

Notice there is a negative relationship between Average Position and account Quality Score along a constant CTR (the regressions shift upwards as position increases). This makes sense—if an ad in the first position has the same CTR as an ad in the third position, the ad in the third position likely has better relevance and consequently a higher QS.

Just as before, CTR has a logarithmic relationship with QS and improving CTR has diminishing returns in improving QS; improving CTR from 1% to 2% improves QS more than improving CTR from 2% to 3 or 4%.

The above graph shows that returns diminish faster for higher positions. Therefore, improving CTR from 1% to 2% for an ad in the third position raises QS by roughly 75%, whereas the same improvement in the number one ad only raises QS by roughly 60%.

For the top four positions (1.0 -4.0), CTR is a major indicator of QS, with roughly 50% correlation between the two variables. In the lower positions (4.0 and below), that correlation diminishes to roughly 30 to 35%, indicating that other issues (like poor landing page relevancy or ad relevancy) may have a larger weight on their poor QS.

I didn't see any strong direct relationship between QS and Average Position (R-squared = -.0000005, signaling no correlation), which means that you can't buy a higher Quality Score simply by raising your keyword bids.

Quality Score vs. Position

Key Takeaways:

  • The higher your CTR, the higher your QS, though CTRs are influenced by ad position, which is a by-product of QS.
  • There are diminishing returns in improving CTRs when it comes to QS and returns diminish faster the higher the ad position.
  • CTR is a major indicator of QS in the top four ad positions.
  • You can't buy a higher QS by increasing your Max Bid.

Expected CTR and the Effect of Position on Quality Score

As we know, CTR has an exponential relationship with average position. I can figure out the average CTR in paid search by looking at a few accounts and seeing what happens, on average. Let’s call this the Expected CTR. It's a rough definition, but a simple regression shows [CTR = .0673e^-.305(Avg. Position)], [R-squared =.2721]:

AdWords CTR

Using this Expected CTR formula, we can work out how the CTRs of these accounts compare with how we'd expect them to perform with their peers in similar positions.

Below, I've plotted [Actual Search CTR – Expected Search CTR] / [Expected Search CTR vs. QS]. In short, as you travel from left to right along the x-axis, accounts improve their CTRs relative to their peers in similar positions, with 0% having “expected” CTRs for their position.

Quality Score CTR

Adding 100% to all these x values makes all these values positive, allowing us to perform a logarithmic regression:

Quality Score

Key Takeaways:

  • QS isn't really affected by position. Instead, it's affected by our CTR relative to our position. This is an important and substantial difference, because Google would like you to believe that CTR drives QS, to encourage people into higher positions. Increasing your bids may drive you into a better position and may increase your CTR, but likely won’t improve your QS.
  • Those with an Expected CTR in their position likely have an average QS (around 5.5).
  • Improving CTR below this Expected CTR drastically improves QS, but improving CTR above this metric has quickly diminishing returns.

What Does It All Mean? Key Takeaways

Hacking AdWords

WOW, are you exhausted? I am. Seriously though, I hope what you take away from this, beyond the very specific points I'll leave you with below, is that AdWords is, indeed, hackable. It's not some completely mystical, automagical realm where advertisers plod along on the strings held by a benevolent God named Google. Nor are you entirely at the mercy of malevolent competitors and the money-hungry platform.

So how the heck do you start taking real, meaningful steps towards higher Quality Scores, better performance and a greater return on your AdWords investment? Here are my best tips.

  1. Get to Know Quality Score and Give It the Attention It Deserves

Hopefully by now, you're convinced that:

  • Quality Score is a key AdWords metric that governs CPC, Ad Position, and thus pretty much all the other important metrics, including cost per conversion.
  • Quality Score is calculated primarily based on the CTR of your keywords/ads relative to the expected CTR for your current ad position.
  • Google expects rather high CTRs of your ads!

Sounds like CTR is pretty important, doesn't it? Look at your Quality Scores through a CTR lens and focus on getting your CPC/CPA down and your positioning up through better CTRs.

  1. Focus on Commercial Intent Keywords for Raising CTRs

CTRs on PPC ads vary wildly from 0.1% to +70%. What is the discriminating factor?

Commercial intent. People are far more willing to click on ads if they're looking to buy things.

High commercial intent keywords, such as branded keywords or actual products and services (e.g. Nikon d800, stainless steel dishwasher, PPC management software, etc.) have much higher CTRs than informational keyword searches (who won the battle of 1812, how do you wash dishes, how to take good pictures, etc.), where people are far less likely to click on ads due to the informational nature of the query. They're in the very early stages of their buying journey (if they're even going to become a buyer) and aren't yet interested in being sold to.

Also, bid on your own branded terms! This will help raise your accounts' average Quality Score.

  1. Look for AdWords Jackpots


Another great way to raise CTRs is to look for AdWords Jackpots (my own terminology), which is what I call it when all of the paid search ads for a search query are the same or are pretty similar, like this:

AdWords Jackpots

I call this “hitting the AdWords Jackpot” because it's just like hitting a row of lucky 7's when playing the slots in Vegas – because there are valuable optimization opportunities to be had here!

These jackpots generally arise due to a complete lack of marketing creativity on the part of the SEM manager, or excessive usage of Dynamic Keyword Insertion. AdWords Jackpots represent a great opportunity for an SEM manager to do some good old-fashioned marketing and optimize ad text in such a way to differentiate one's products or service offerings among a crowded pool of similar ad listings. Start by asking yourself questions like this:

  • What is the offer? Is it something they really want?
  • What do your customers fear the most? What do they love the most? Who do they trust? Who is the enemy?
  • What is your unique selling proposition? How are you different/better than all the others?
  • What is your guarantee?

Then you’ll stand out and get all the clicks.

  1. Get Serious About Your Ad Spend

At the risk of generalizing here, where people generally get tripped up in AdWords is that they greatly underestimate the expected CTR Google has for their ads; in other words, your 1% CTR keyword isn't as good as you think it is. PPC marketers can also be incredibly lazy and write pretty dumb ads.

Recently, I looked into the account history logs of a few hundred accounts and found that there's not a heck of a lot of stuff happening in the typical AdWords account.

PPC optimization

It is only through diligent and ongoing optimization—adding negative keywords, trying out different ads, etc.—that you can improve your CTRs. Only 1% of small business advertisers made weekly changes within their AdWords account in the last quarter. That is a massive opportunity for 99% of advertisers to roll up their sleeves and get busy outbidding, out-writing, out-testing and outperforming their competitors. The good news is that the bar is very low and spending just 20 minutes every week on PPC over a quarter would put you in the top 1% of most active advertisers!

  1. Truly Integrate Your Efforts Across SEO, Content & PPC

Google so greatly rewards high CTR/Quality Score ads (and conversely penalizes keywords with lousy CTRs) that an awesome hybrid solution becomes apparent: use your content marketing efforts to cover informational keywords with SEO content and commercial keywords via PPC.

This strategy also makes sense in that it's getting harder to rank on commercial keywords for organic terms, as massive, blinged-out Product Listing Ads typically take >85% of the above the fold browser space. Plus, that information-rich content is a perfect match for informational queries. This strategy of using both PPC and SEO for different query types is what I do for my own PPC.

In Summary…

AdWords, like other marketing channels out there, isn't just a brainless coin-operated system as many believe it to be. Your ability to pick keywords and write great ads has a tremendous impact on the ROI of your campaigns. AdWords is hackable and you are in control of your PPC destiny.

I hope a deeper understanding of the inner workings of Quality Score and just how deeply CTRs affect your AdWords performance is the catalyst you need to start making substantial changes in how you do paid search.

Which of the tips above do you think will be the easiest—or the most complicated—to put into action? Are you reaping the rewards of high Quality Scores or suffering penalties due to low Quality Scores? Share your thoughts below!

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Comments

Tuesday July 22, 2014

daniel (not verified) Said:

Hi Larry,

i am not sure if i missed this or not but is there anyway to determine how high my CTR should be without getting a QS penalty relative to my avg. position in google. It would be a great framework to have when looking at a new campaign to determine which ads needs to be improved.

 

 

Monday March 24, 2014

Alex (not verified) Said:

Great article, very useful information.

Monday March 24, 2014

Jizayle (not verified) Said:

Very Informatic stuff!!!!. . . . .Hope you don't mind me questioning you?

Waht is the strategy of Average CPC?

Thursday March 06, 2014

Sriniwas (not verified) Said:

Thanks Larry for such an excellent post on successful advertising in Adwords. This guide is really very helpful..

Thursday February 27, 2014

Umer (not verified) Said:

Hi Larry,

If CTR is important then why Google immediately shows QS after adding keywords?

If some keywords are getting impressions but no clicks, having 0% CTR, does it effect avg. CTR of an adgroup?

How often or when exactlyGoogle update Quality Score?

If we use a keyword in Ad text but not used on landing page, will it improve QS?

I know its bit much, but having a hope to get the answers. And by the way, informative article. Keep up the good work.

 

 

Wednesday January 29, 2014

Neil Ashworth (not verified) Said:

Very detailed article. Good stuff. I would add that while Google loves ads with a high CTR it might not be in your best interest as the advertiser to play ball (all the time) the way big G wants you to.

Thursday January 30, 2014

Larry Kim Said:

i addressed this. higher avg CTR = higher avg. quality score = lower avg. cpc = lower avg. cpa.

Thursday January 30, 2014

Bethany Bey (not verified) Said:

I agree Neil. Typically, I'm looking to improve CTR no matter what. I have had some situations though where based on the product/service and keywords we're targeting that getting a high CTR can be detrimental to return. I worked on a client who sold a luxury version of a typically lower-cost product. Putting the price in our ads lowered our CTR, but improved conversion rates because we were weeding out people before they clicked, which then improved ROI.

That's why it's important, as Larry said, to have a good overall account QS so that you can have these keywords that might have lower CTR but the overall account health gives them a boost.

Thursday January 30, 2014

Loren (not verified) Said:

Oh my gosh! What a lot of information. All of it incredibly useful.

I'm loving the Adwords Jackpot! I'm now off to find some....

Thursday January 30, 2014

Larry Kim Said:

go through your top keywords. they're suprisingly easy to find given that many lazy marketers rely excessively on dynamic keyword insertion. use ad preview tool.

Thursday January 30, 2014

Diego (not verified) Said:

Fantastic stuff... Couple of question though, if you will:

What is the importance, if any, of the account's average QS? I mean can we leverage a good account's average QS other than it being the result of a well executed AdWord strategy?

And if that's so, do the keyword without impressions are taken into account for this average QS, or just the ones that are already performing?

Thanks a lot for the article.

 

Thursday January 30, 2014

Larry Kim Said:

1) the account average quality score is incredibly important. i often see keywords with lower CTR's geting 7/10 or 10/10 provided that the account or campaign level quality scores are very high above average.

2) i'm using impression weighted quality scores here.  So by definition, a keyword with 0 impressions and quality score 7/10 would have zero impact on the calculation.

Friday January 31, 2014

Diego (not verified) Said:

Thanks a lot for your feedback!

Thursday January 30, 2014

Colin (not verified) Said:

Very useful insights here, thank you Larry.

I have similar questions to Diego - does average QS across an account come in to play for a particular auction, or only QS/CTR for the keyword and ad Google matches to the search term?

I'm also curious about account wide averages in this context: We run two kinds of campaigns, branded and non branded. Our brand campaigns have very high CTR and QS, low CPC. Non brand much lower and higher respectively. 

Our branded campaigns deliver high conversions that we believe would often have happened even without PPC advertising - the channel provides an alternate means of response (with Google in the middle) for people who would have navigated to us anyway. Non-Brand brings us new customers, people who didn't know us before. If our belief here is correct, the non-brand is the more important to us and therefore our "worst performing" campaigns are the ones we need to optimize and develop, rather than shut down to reallocate the spend. Does the performance of the high QS brand campaigns help lift the performance of the non-brand?

I would really like to hear your perspective on this.

Thanks again for your great info.

Colin

Thursday January 30, 2014

Larry Kim Said:

Hi Colin, google doesn't talk much about account or campaign level quality scores. however i believe (and have quite a bit of data to support) that they do indeed pay a huge role in the "auditioning" of new keywords, or for scoring keywords with relatively lower volumes.

So I believe (with very high degree of conviction) there is indeed a benefit of running branded campaigns which are predisposed towards generating above average CTRs, which in turn improves your account level quality scores. It gives you the "benefit of the doubt" when it comes to evaluating those new or low volume keywords. For this reason, i always recommend allocating at least 15% of your ad spend towards branded campaigns. The cost will be offset by the benefits associated with having higher account average quality scores.

 

 

 

 

Thursday January 30, 2014

Anthony_Mac85 (not verified) Said:

Simply a fantastic article. One of the best i've read on PPC, high five to Larry Kim yes

I like the idea of looking out for AdWords Jackpots - something i've never heard about before but when I think back to the times I've been scoping out competitors ads, I see this all the time. In the example you give, how would you best go about being different to the other ads without reducing keyword relevencay? I guess I'm asking what ad would you write wink

Thursday January 30, 2014

Larry Kim Said:

i don't know enough about that business or target market. but i would start with stuff like ...

  • what is the offer? is it something they really want?
  • what do your customers fear the most? what do they love the most? who do they trust? who is the enemy?
  • what is your unique selling proposition? how are you different/better than all the others?
  • what is your guarantee?
  • etc.

It's basically "marketing". Search engine marketers often forget about the "marketing". From there i would come up with a list of 100 ads (yes, 100 ads!) and test every one.
In total you're only talking a few thousand words here. (it's not like writing 100 blog posts).

Wednesday February 05, 2014

Anthony_Mac85 (not verified) Said:

Thanks Larry. Those are all intelligent questions to ask, I've noted them down.

100 ads! Wow. Well I guess that figure would also depenend on the search volume for a given keyword. If a keyword isn't searched for very often then it could take months, even years to properly test 100 ads. 

Thursday January 30, 2014

Luke Lauer (not verified) Said:

Hi Larry,  Good article - love the use of regression.  I was an economics major so it's really nice to see the data generated by the regression to support the article.  I'm also a PPC Manager so it's good to see some quality research... something we really don't see enough of in our industry.  Way to many "holistic" claims.  Thanks again.

Monday February 03, 2014

Larry Kim Said:

yep agreed. There are so many "quality score sucks" articles which offer big claims but no supporting data other than "because i said so".

 

Friday February 07, 2014

Consulente PPC (not verified) Said:

You have been great! Thanks for sharing all that knowledge.. appreciated!

Wednesday February 12, 2014

Mcewan (not verified) Said:

Thanks Larry really enjoyed the post.

Thursday February 13, 2014

Simplyadwords (not verified) Said:

Thank you very much for this nice articel about the impact of having a Good Quality Scores for Google Adwords. Good Job!

Wednesday February 19, 2014

Spook SEO (not verified) Said:

What about those sites who don't follow any Google panda and penguin's guidelines but they are using Google adword PPC. Google offers this paid service to them while these sites are ignoring all the user's requirements. It's mean Google promotes them for money and all rules only apply on those sites who don't pay Google. Its Big fraud by Google and Google making all this panda and algorithm rules only for those who can not pay Google adword and forcing them to use adword.

Wednesday February 26, 2014

Andreas Hatlem (not verified) Said:

As far as I know Google made a update to its AdRank in the beginning of this year also incorporate the expected impact from ad extensions.

Wednesday February 26, 2014

Jimmy Jimsson (not verified) Said:

Great article Larry.

One question though, what about ad relevancy and landing page experience.

Are these not factors that can effect the QS and final click price?

Wednesday February 26, 2014

Elisa Gabbert Said:

Jimmy, CTR is Google's best measure of ad relevancy. As for landing page experience, it's a factor but very small compared to the specter of CTR

Wednesday February 26, 2014

Jimmy (not verified) Said:

Hi Elisa,

But surely CTR is measured against expected CTR and ad relevancy is measured with ad relation to search term and if that search query is being answered?

Wednesday February 26, 2014

Elisa Gabbert Said:

Yep, but as the post explains, if your actual CTR is higher than your expected CTR for the position, Google sees that as the best evidence that your ad is answering the search query -- and your Quality Score goes up. High CTR outweighs the search term being in there (notice the section on DKI -- it helps but only so much)

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