A is for Adwords

The ABCs for Online Merchants

A is for Adwords
June 4, 2020 Laisa Lopes
A-Adwords-Shopbot

If you’re a small or medium business owner, the idea of venturing into Google Adwords can seem daunting. If you do Adwords right, it could transform your business from night to day. However, if you do it wrong, it’s quickly a waste of time and money for not much in return.

But we’re not here to talk about how much money you can make or lose by advertising on Google Adwords. Here, we’re going to tackle the basics of this marketing platform that often go overlooked, explain the main terms you need to know and give you some invaluable tips before getting started.

 What is AdWords?

So, let’s start with the beginning, what is AdWords or Google Ads as they now call it. Well, developed by Google, AdWords is a pay-per-click (PPC) online advertising platform where you can bid or pay to display advertisements that promote your products, services, or cause to your target audience. These ads can be displayed in the form of product listings, mobile app installs, video content, etc. They can span across different channels as well, such as YouTube, Blogger, Google Display Network and Google Shopping, all part of Google’s grand network.

No matter the size of your company, you probably know by now that the online world is very competitive. Companies are fighting to grow their business, expand their reach and establish a solid online presence in the first positions. For that purpose, brands use a variety of techniques to dethrone competition and rank well on search engines. For the latter, there are two ways to achieve a good ranking: SEO and SEM (Search Engine Marketing which comprises of paid ads). 

Search Engine Optimization (SEO) is usually the #1 go-to strategy for every business that wants to build a strong online footprint. Content and links, that’s what SEO is all about. However, the process of optimizing your website to get organic (un-paid) traffic from the search engine results page takes time and patience. But, you do it anyway, in hopes that the search engine will pick up your content eventually by following good white-hat SEO rules, to be listed among the top results, and thus expand your visibility organically without paying.

💡Psst… We mentioned above the term “organically” which is an important term that gets often thrown around between marketers. When taking advantage of Google’s network, traffic received from Google can be divided into organic traffic and paid traffic. In other words, non-paid and paid traffic. The term “organic traffic” is used for referring to visitors that land on your website as a result of unpaid (“organic) search results.

While SEO is the holy grail of methods, pay-per-click ads are usually a go-to for those businesses that want results faster. This is Google’s express paid options and that’s where Google Ads come in. Learning more about it can be a crucial marketing tool complementary to any business strategy. Why? Because it’s a powerful tool based on performance. If you do it right, you can start seeing results in no time.

Think about it: People go to Google when they’re looking for something specific. They’re actively looking for something to buy; and they’re telling us what it is by typing out the keywords around your services and products. When it comes to search engine marketing (SEM), Adwords is the best out there.

Let’s look at the numbers. Google gets $1 out of every $3 spent on online advertising. Yes, ads are Google’s greatest source of revenue, with 95% of their $60 billion revenue per year coming from Adwords. It’s a massive industry, no doubt about it. Additionally, over 1 million businesses use this platform, investing a serious amount of money on this. It makes sense; instead of slowly building a solid foundation of links and content, Adwords lets you take a shortcut to the top position on search results. 

The Adwords marketplace works as an auction

Did you know that it works like an auction? This means that when you place a bid on a keyword, you’re bidding to have your ads shown to relevant audiences that are most likely to click. You’re tapping into the biggest online audience out there, as Google is the number one search engine worldwide. Not only does Google have over a billion people using their products and services. When it comes to search queries, Google handles 40,000 searches per second and as of December 2019, it holds 92.71% of the search engine market share

So, the race is to appear on the first page, under or besides the organic search content on the search engine result page, more popularly known as SERP (Search Engine Results Pages). The first page of Google captures at least 71% of search traffic clicks. That number goes down drastically for the second page. 

That’s why Google AdWords is so powerful (and profitable). There’s no better form of SEM (search engine marketing) out there when you have the budget. 

Let’s have a look at an example. If you own a gardening business, you bid to have your ad show up every time a user types on Google keywords such as “flower stand”, or “gardening tools”. 

But it’s not all about the amount you place on a bid

Businesses dedicate entire marketing teams to efforts to rank on the first page. Organic ranking is what we all aim for in the long run, but it takes consistency. That’s why it is common for marketers to use Google Ads, which improves your chances of showing up on the top results on the SERP – given that you can bid competitively and that you have a positive Quality Score. 

Since it works like an auction, businesses are bidding money for clicks. However, the highest bid isn’t always the winner. There’s a quality factor combined with the money factor, tailored to create the best experience for the user. 

Your Quality Score is a metric based on the users’ experience on your landing page, as well as your website’s relevance and your ad. It has a big influence on the cost and effectiveness of your campaigns on Adwords. If we were to compare it with a more traditional example, we’d compare it to your credit score. Just as your credit score has a direct correlation with your qualification – or not – for a loan and its interest rate, Google Quality Score affects how your ads and bids perform. 

To calculate your Quality Score, Google rates the quality and relevance of your keywords and PPC ads. It’s used to determine your cost-per-click (CPC), and when multiplied by your maximum bid, it determines your ad ranking in the ad auction process. Your Quality Score will depend on factors such as: 

  • Your CTR (Click-Through-Rate)
  • Your keyword’s relevance to its ad group
  • The quality and relevance of your landing page
  • The relevance of your text
  • Your account’s performance on Google Ads

In order words, quality ads combined with a solid bid = win! If you’re just starting out, don’t panic. You can always tailor your ads according to your budget, and even pause or stop any ad spending at any given time. So start little by little, feel the ground. You can tap into the analytics resource of the tools to improve your ads.  Google Ads is straightforward, but not easy. 

The question you need to ask yourself, before launching into the world of bids, is: is your website relevant? In the competitive world of ads, having the budget isn’t the only ingredient in succeeding, even though it’s very important. You still need to be relevant, or else you won’t appear on searches. In other words, Google won’t identify your website as “worthy”. What’s in play here is your market, your website’s quality and your budget. Ask yourself these questions:

  1. Are you in a popular niche market? Or a conservative one? If you want to dive into the world of ads, you’ll need to spend a lot of money if you want to be visible 24/7 in a popular market. You’re competing with the big guns here!
  2. If you can’t compete with the big e-commerce players on the Ads marketplace, try other channels such as price comparison websites or other online platforms. They’ve usually done their homework when it comes to SEO and Adwords, so all you need to do is list your products. 

What you need to know before you start bidding

Let’s dive into some crucial terms that will help you understand the gears / engine / ins and outs / details / whole picture of Adwords.

1. What does PPC mean?

Short for ‘pay per click’, PPC is an advertising method that involves only paying for a successful click.

You will pay only if the person seeing your ad actually clicks on it. 

We’ve talked about pay per click (PPC) advertising before. It’s different from other advertising models (like banner ads with a CPM or cost per thousand impressions) because you’re not paying for eyeballs. Instead, you’re paying for results.

No results? No clicks, leads, or sales? You don’t pay. Simple as that, it’s based on a pay-as-you-go system.

PPC ads are technically free to create but require experience as you must choose relevant keywords to ensure your ad ranks well. However, in some cases, you may also pay based on the number of times an ad is displayed (this is called Click for Impression – CPM) based on your selection of ads. While it’s an investment, it’s worth making since users who click on ads are 50 percent more likely to convert.

2. What’s a keyword?

That’s easy, right? Well, even some of those who have been in the search advertising business for years tend to forget. A keyword is a word – or phrase – that the user searches for online. Your ads will then show up for the keywords or keywords that you picked. 

💡 Remember: you can ask Google Ads to make your ads appear for an – exact match-  of the keyword picked, or – broad match – variants of the keyword picked or lastly, you can opt for – phrase match- which is multiple keywords picked in a specific order. 

Note to merchant: Google loves big brands on their organic search rankings. So if you’re setting up an ad for a popular market, odds are that your bid will have to be high in order to outrank your competition. 

3. What’s a click-through-rate (CTR)?

You can have access to the amount of clicks on your ads, and the amount you have to pay for each one. Google also counts how often your ad has already been shown when users searched for that keyword, this is what is called impressions.

By dividing clicks by impressions, you’ll have your click-through-rate (CTR). The CTR will tell you the percentage of users clicked on your ad and landed on your advertised page. A good CTR is an indication that your ad is working well. 

4. What’s a bid?

Don’t forget, Adwords works like an auction house. To get started, you need to set a budget and a bid. The bid is how much you’re willing to pay for each click. 

Let’s have a look at an example. If your maximum bid is $1.50, Google will only show your ad to users searching for keyword if there aren’t other bidding more (on average). If all the bidders have the same quality score, Google will show the ad by the company that set the highest bid for that keyword. That’s how Google maximizes revenues. 

However, if the bids on your chosen keyword are less than yours, Google will optimize impressions and bid and won’t spend your maximum bid of $1.50. You might end up paying less that that amount per click. 

5. What does CPC mean?

This means that your cost-per-click (CPC) can be lower than your maximum bid. Particularly if your ads have a good quality score, as mentioned above. 

6. What’s a conversion?

In marketing terms, a conversion is a new lead or sale. It means the user took the action that you wanted them to take – that can be a purchase, signing up to a newsletter or something else. 

In most cases, companies make conversions about money. Why? Let’s look at it this way. Imagine you created 5 different campaigns for different keywords, with a $5 daily budget to each. If you let the campaigns run, without monitoring, you can end up with a never ending bill. So by setting conversions as sales of a product, it’ll allow you to earn back the money you spent on ads. 

Note to merchant: Make sure you include a marketing costs when setting up your pricing strategy.

7. What are campaigns?

When you sign up on AdWords and verify your payment method, you will be asked to create a campaign. You can select from various types of campaigns depending on your target audience, nature of the product, and other such factors. 

Those who have multiple websites or products can set up several campaigns. The success rate for each campaign will be different as each campaign is handled individually. 

An account can have multiple campaigns. Each ‘Search Text’ Ad Campaign has multiple ad groups, which is where keywords and ads are organized. In the figure below, you can see a standard PPC account structure hierarchy.

Ad-Structure-Shopbot-Adwords-Community

A good campaign structure is a critical piece of a successful marketing effort. It’s all about good organization, where “apples goes with apples” and “oranges goes with oranges”. There are hundreds of ways to consider structuring your campaigns, but as long as it’s done with logic and you can find yourself easily within your hundreds of campaigns and ad groups created, that’s it!

👍 Rule of Thumb: Create separate campaigns for your brand keywords. That’s because they’ll perform differently from your non-brand campaigns, given that users are already familiar with your company – or are getting used to – at some level.

8. What are Adgroups?

An ad group contains one or more ads that share similar targets. In a CPC bid, there are two options. 

  1. You set a bid for an ad group’s keywords to appear when the add is triggered.
  2. You can also set prices for individual keywords within one ad group. 

You can use ad groups to organize your ads by a common theme, such a brand keywords and your product-focused keywords.

9. What Kind of Ads Are Displayed on AdWords?

You can use different sizes and formats on the Google Display Network. Here are your choices:

  • Text Ads: These ads can contain three headlines of 30 characters each and two descriptions of 90 characters each.  Such ads are popular but complicated since you have to convince the users in just a few words to click your link. Make sure your text is relevant to your ad and your landing page. 
  • Image Ads: These ads contain an image that fills the entire ad block on the page. Advertisers can customize such ads by changing imagery, background colors, and layouts. They tend to offer good returns.
  • Video Ads: These ads are getting extremely popular but can end up being more expensive. You can display video ads on platforms like YouTube. These videos can be long or short.
  • Rich Media Ads: These ads include animations, interactive elements, or other such aspects to help viewers interact with the ad. 

There are about two dozen ad block sizes to choose from. Each website that serves ads chooses the ad block that fits their layout, hence it is best to create ads that can be displayed in multiple sizes.

10. Extensions

An ad extension provides the users with additional information, typically focused on giving them more reasons to choose your business. You can use all the extensions relevant to your business goals. Google Ads will select which extensions to show according to each individual search. 

You’re basically adding more content to your ad in order to give it more visibility and prominence on search results. Extensions normally increase an ad’s click-through-rate by several percentage points. Formats include: call buttons, location information, links to specific parts of your website, additional text, and more.

11. Landing Page

Your landing page is the URL users arrive at after clicking on your ad. Your landing page experience is basically how well your website gives users what they’re looking for. Google measures this through a combination of automated systems and human evaluation

The experience offered will affect your ranking, and consequently your CPC and your quality score. If it shows that your website offers a poor user experience, your ads will likely show less often – or not at all. Keep in mind what we said about website’s relevance! This is true for SEO as well.

How Much Should I Spend on AdWords?

Ah! You thought, we would answer with a straight answer. The truth is that no can answer for you cause there’s just too many variables to take into account and every business has different targets.

Nonetheless, here’s a small guide to help you calculate your conversion rate and budget.

Let’s assume you sell shoes and the selling price for each pair is $20 that includes $5 profit. You advertise on Google and 5,000 people see the ad but only 100 users end up clicking and buying the product. This means your conversion rate is 2%. 

If you do simple maths, you will make $2,000 in sales through Google Ads that includes $500 of profit. Since advertising costs money, you should now decide how much you can afford to spend on advertising. If you are okay with a profit of $3 then you can pay Google 40% commission, which equals $2. This will give you the maximum amount you can afford to spend. 

Here’s the formula: Maximum CPC = Profit (x) Google’s commission (x) conversion rate

          = 5        (x) 0.4 (x) 2%          = $0.04

The figure is the maximum amount you can spend per click on AdWords to maintain your profit of $3 per sale assuming your conversion rate remains the same. You will be able to afford to spend more or less if any of these figures changes.

3 vital things to do before starting for first-timers:

  • Spend wisely when testing Google Ads for the first time. Set a budget before anything else, it can be as little as $25 per day. Don’t forget to cap your bids as well with a Maximum CPC. Don’t use automated bids, until you are familiar with the performance of your own ads. And then start bidding as low as $0.05, and then work yourself up as you analyze the first results on your Adwords dashboard (Note: there’s a 12-24h delay, so it’s not exactly in real-time when making changes).
  • Don’t over-complicate things. The Google AdWords interface is complex, and easy to get lost in it. So start by creating different kinds of campaigns and testing out adgroups. Keep it simple to get your bearings and then slowly tackle more complicated things. 
  • The most important thing is to be patient. 99% of the people who end up losing money on AdWords end up quitting too early (or spent too much, too fast). Have patience, it takes time.

2 Comments

  1. Daniel Dan 1 month ago

    Very informative and helpful article, thanks a lot!

    • Author
      Laisa Lopes 4 weeks ago

      Hi Daniel, glad to hear you liked the article! Feel free to share 😉

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