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Written by Giovanni Letellier
on February 01, 2018

Winning the bidding war on Google AdWords and getting the most out of their ad investment is a key goal for online marketers and advertisers. AdWords Google’s proprietary pay-per-click, auction-based search ad platform gives businesses access to 82% of internet users who use its search engine.

 At its most basic, the platform works essentially in the same way a real-world auction does. There’s something up for grabs, there are bidders clamoring to get their hands on it and as always, the bidder with the highest unbeatable offer takes the prize home. Only in this case:

  • The auction item is a highly-coveted top ad ranking for a competitive keyword that is pertinent to the bidders’ business,
  • The bidders are the advertisers and marketers vying for said top ranking
  • The bid is the highest payable amount the advertiser has set for their keyword groups.
  • The winning bid is determined by the advertisers’ Quality Scores and the maximum bids set for the keyword.

 

Understanding How the Google Ad Auction Works

 

Step 1: The Search Query

 

The Google Ad Auction begins, as with most things do on the internet these days, with a search query. Every time a user enters a term or phrase into the search bar, it triggers the auction process. Given how many search queries - about a 3.5 billion- happen per day, that’s how many times ad auctions are running, as well.

So, let’s say, a single user searched for “Inbound Marketing

 

Step 2: Advertisers Step Up Their Game

 

Now advertisers, on their end, will have identified a set of keywords they want to bid on: Inbound Marketing Agency / inbound marketing services, and so on. They also determine the maximum bid for these keyword sets. They pair these keyword sets with the ad they want to display for those keywords.

Definition: The maximum bid (CPC) is the amount that advertisers set to determine the highest price that they're willing to pay for a click on their ad.

 

Step 3: AdWords Takes Over

 

The AdWords system now scans all the available ads that are highly relevant to that keyword and eligible for display. It then further whittles down the ads, eliminating those that target a different location or that don’t meet its standards.

 

Step 4: Ads Are Ranked and Displayed

 

The ads that have made the cut are displayed on the Google Search Engine Result Pages in order of their Ad Rank. An advertiser's rank is determined by a number of factors, including:

Ad Quality Score: The Quality Score is a metric that Google uses to establish the relevance of an ad to the searcher. To calculate this, it takes the following into consideration:

  • The ad’s click-through rate (CTR)
  • The relevance of the ad to its associated keyword group
  • Landing page quality and relevance
  • The relevance of the ad text
  • The advertiser’s previous AdWords performance
  • The Maximum CPC Bid

The Ad Rank can be seen as a product of the Quality Score and the Ad Maximum Bid.

Ad Rank = Quality Score x Maximum CPC Bid

The higher your quality score, the higher your rank. On the other hand, a high maximum bid may not always result in a higher ranking or override a poor Quality Score. Remember, Google’s search algorithm is highly-focused on delivering relevant and valuable content to its users.

 

Step 5: Google Determines Advertisers’ CPC

 

Based on the advertisers’ ad ranks and their quality scores, Google now determines the CPC that it’ll deduct. This formula is as follows:

Google CPC = {Actual Ad Rank of Next Highest Bidder / Advertiser’s Quality Score} + $0.01

The higher your quality score, the lower your CPC. Therefore, the more relevant your content and its corresponding ad, Google rewards you with higher ad rank and lower CPC costs.

 

Google AdWords Campaign Goals and Bid Strategies

 

Now, Google AdWords offers its advertisers a number of bidding strategies that are tailored to different campaign types. But, before you determine what strategy works best for you, you should determine what you actual goals are.

Google classifies these goals into 4 major categories:

  • Increasing CLICKS
  • Increasing IMPRESSIONS
  • Increasing CONVERSIONS
  • Increasing VIEWS

Strategies to Increase Clicks

 

If your goal is to increase the number of clicks on your ad, then you can opt for:

Manual CPC Bidding

Manual Cost-Per-Click bidding allows you to manually set the maximum bid when someone clicks on your ads. This lets you control when and how much you pay: you only pay when someone clicks on your ad, and you decide how much that click is worth.

You can also set the bid at either ad group level or at the keyword level. The keyword level offers the maximum level of control on each bid, while the ad group level assigns the same bid amount to all the keywords associated with that group.

Google recommends this strategy primarily if:

  • You need to increase website traffic, but not necessarily brand awareness
  • You don’t need to reach a fixed budget at the end of the month
  • Your campaign targets the Search and Display networks

The catch here, though, is knowing how much to set as your maximum bid. It depends on your knowledge of your business and the likelihood of a sale being made and the amount earned through those sales.

Maximize Clicks

Maximize Clicks is an automated bidding strategy that automatically adjusts the bid amounts to bring you the maximum number of clicks on an ad. All you need to do is set a daily budget for the campaign. This daily budget helps determine the average amount that you’d like to spend per day.

Google Adwords strategies maximize clicks

Google recommends this strategy when:

  • You have a fixed budget you need to reach by the end of the month.
  • You don’t have the time to monitor each individual bid
  • You want to increase website traffic

Once, you have set your daily budget, you can also set the following:

  • Maximum CPC bid limit - a cap on the bid amount for keywords, campaigns or ad groups.
  • Target Spend - which is the target amount you’re willing to spend each day on your keywords, campaigns or groups in a single strategy.

Google AdWords adjusts your bids without going over your CPC bid limit. If you don’t, however, specify a CPC bid limit, AdWords attempts to adjust the bids within your target spend.

AdWords Strategies to Increase Impressions

 

The following bidding strategies can help you maximize your visibility, i.e. increase the number of impressions you receive on your ads.

Target Search Page Location

This strategy automatically sets your bids to increase your ad’s chance of appearing either on the first page of the Search Results for the Search Campaigns, or on the top of the SERP: which are prime spots for ads. In this strategy, your bid will automatically update several times a day to display your ads in the target location.

Google Adwords strategy

You can set the following options:

  • Ad Placement: To determine where the ad will be placed: either on the top of the SERP or the first page of the SERP. AdWords will then adjust your bids to meet the estimates of the respective positions.
  • Bid Automation: You can set the option for Google to automatically increase or decrease your bids to match the top estimates for the placements. Or, you can manually set the bids and only allow Google to adjust the bids when they fall below the estimate.

Target Outranking Share

Here, you choose a domain that you want to outrank so that your ad is always displayed above that domain’s ads, or whenever that domain’s ads are not displayed.

Adwords strategy target outranking share

To use this strategy you need to set the following options:

  • Benchmark Domain: The domain which you want to outrank in the Search results. If your campaign has enough data, Google will also recommend domains that have a stake during the same auctions as your own.
  • Target Outranking Share: The percentage of auctions in which you want to outrank the benchmark domains. The higher the percentage, the higher the budget you’ll need to invest in the campaign.
  • Maximum Bid Limit: The maximum amount you’re willing to bid for keywords, ad groups or campaigns. This setting will, however, prevent Google from automatically raising bids in budget-limited campaigns. Low Quality Keywords: This setting determines how AdWords will handle keywords will lower quality keywords.

Cost-per-Thousand Impressions (CPM)

 

This strategy allows you to set target bids for your ads once they have accumulated impressions on YouTube or the Display Network.

Cost-per-Thousand Viewable Impressions (vCPM)

This is a manual bidding strategy to increase the number of impressions on your ad by setting the bid amount for every 1,000 impressions your ad receives on the Display Network.

Google recommends this strategy when:

  • Your primary aim isn’t about getting clicks or conversions, but increasing ad views
  • Ad placement is key to your business goals: that is you care about your ad appearing in front of an audience that is interested in your ads
  • You want to raise brand awareness. Here, image and video ads often serve this purpose.

If your goal is to derive meaningful activity from your customers such as downloads or filling out forms, this strategy is not for you.

 

Strategies to Increase Conversions: Smart Bidding

 

To increase the number of conversions from the ad-clicks you receive, Google has created its Smart Bidding strategies, which use machine learning to optimize for conversions or conversions value during Google’s “auction-time bidding”

Definition: Google’s Auction-time bidding is a feature of AdWords that leverages the best contextual auction-time signals such as the searcher’s demographic, physical location, device, time of day, language and operating system to determine the right time for the advertisers to place their bid.

Smart Bidding also takes a wide range of contextual signals, in addition to those factored in auction-time bidding, to adjust an advertiser’s bids. These include:

  • Location Intent: which factors a location where the user intends to be at, but isn’t physically at.
  • Remarketing: which factors whether the user has recently visited your website, and has been added to your remarketing list.
  • Ad characteristic: which determines which version of the ad will be shown depending on the user’s context.
  • Search query: which triggers the bid based on the actual search query that triggered the search, not the keyword.
  • Website placement: which takes into account the site on which the ad is set to appear. For instance, an ad for consumer goods when placed on a high-traffic site e-commerce website has a higher chance of conversions, than if it were placed on a news website. So Google, automatically adjusts the bid to increase the likelihood of clicks.

The automated bidding strategies associated with Smart Bidding include:

Target CPA (Cost-Per Acquisition)

Target CPA allows you to optimize your bidding to increase your conversions while targeting a specific Cost-Per-Acquisition. Using the historical performance of your campaigns and the contextual information around the search during the auction time, Google’s algorithm finds the optimal CPC bid during that auction.

Google Adwords Bidding Strategies

Some conversions may cost more than the target CPA you’ve set, but Google will still adjust the overall cost of conversion to the target CPA.

This strategy requires you to set the following values:

  • Target CPA: As stated before, this is the target amount you’re willing to spend per conversion. Setting it too low can cause you to lose out on potential conversions, while setting it too high can result in overspending. However, if your campaign has historical data, Google AdWords can solve the dilemma by specifying a recommended Target CPA.
  • Bid Limit (optional): Google doesn’t recommend setting a bid limit for Target CPA strategy. However, if you wish, you can set a maximum and minimum bid limit for any keywords, campaigns or ad groups.

Target ROAS (Return on Ad Spend)

Target Return on Ad Spend is a strategy that addresses the following parameters:

  • Target ROAS: This which is the maximum return you expect to earn for every ad dollar spent.
  • Conversion Values: To apply this strategy, you need to set conversion values for the conversions that you’re tracking. Conversion values assign a value to various conversion types associated with a business: with the highest value been assigned to conversions that are worth more in terms of revenue/value to business.

Google Adwords ROAS

Since this strategy is centered on machine learning algorithms, you need at least 15 - at most 50 - successful conversions in the last 30 days. In conjunction with the set conversion values, the algorithm will have enough data to work with, and predict future conversions and making effective bidding decisions.

For Search and Display Network campaigns, the AdWords will set a maximum CPC bid to match an average ROAS close to the target ROAS you have set.

Maximize Conversions

Similar to Maximum Clicks, if your aim is to optimize for as many conversions as possible within your ad budget, without setting a specific CPA, you can use Maximize Conversions. The algorithm again uses historical data and contextual information to set the maximum CPC bid value with highest chance of conversions.

Adwordsmaximize conversions

To use this strategy, you need to ensure that your campaign is not part of a shared budget: the Maximize Conversion needs its own budget. Likewise, if ROI is of paramount importance to your campaign, then this strategy is not recommended.

Enhanced CPC (ECPC)

This is different from the other Smart Bidding strategies; here Google adjusts your manual bids using historical conversion data. Using AI machine learning, the system assesses which searches or ads are likely to result in conversions, and then increases or decreases the manual bid set by the advertiser by 30%.

ECPC is constrained by the maximum CPC bid, and isn’t as flexible as the other Smart Bidding strategies. However, it does try to keep your CPC equal to what you get with manual bidding.

Strategies to Increase Views (Video Ads only)

 

This category, as its name implies, works for video ads only: where the aim is to increase the number of views. The strategy under this category is:

Cost Per View (CPV)

Here, the advertiser sets the maximum bids for TrueView Ads in AdWords. Therefore, you’ll need to pay every time your ad generates a view.

A view, in this context, is counted when a user watches 30 seconds of your ad or interacts with it if the ad is shorter than 30 seconds. In the latter case, an interaction can be a CTA overlay, card or a companion banner ad on the video).

For the CPV strategy you need to set the following:

  • CPV Maximum Bid, which is the maximum amount you’re willing to pay per view for every ad of your ad group in a TrueView ad campaign.

Similar to CPC, the actual CPV you’ll pay for your TrueView campaigns will not be the same as the maximum bid you have set. The amount is dependent on your Quality Score and Ad Rank, as with the CPC.

Conclusion

Choosing the best bidding strategies, as we’ve seen, depends on your business goals. Google AdWords provides a number of strategies that are oriented to these goals which are categorized into Clicks, Impressions, Conversions and Views. When it comes to increasing conversions, however, Google has a set of automated, intelligence-driven tactics called Smart Bidding which rely on historical conversion campaign data and the user’s context to make smart bidding decisions.

SiO Digital is leading the way to the future, starting today. We use AI tools to design data-driven strategies and leverage the power of iNBOUND iNTELLIGENCE.

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