How Costs Are Calculated
AdWords gives you control over your advertising costs. There’s no minimum amount that you have to spend. You set an average daily budget and choose how you’ll spend your money. Go to your account at https://adwords.google.com to see full reports of your advertising costs and billing history anytime.
Every time someone searches on Google, AdWords runs an auction to determine the ads that show on the search results page, and their rank on the page. To place your ads in this auction, you first have to decide what type of customer action you’d like to pay for.
For example, you might choose to pay for the following actions:
- When someone clicks on your ad (cost-per-click or CPC)
- How frequently your ads are shown (cost-per-impression or CPM; available for Display Network campaigns only)
- How many conversions you receive (cost-per-acquisition or CPA)
These are called your bidding options. Most people starting out in AdWords use the basic CPC bidding option, which means they accrue costs based on the number of clicks they get on their ads.
If you use this option, the amount you’re charged per click depends in part on the maximum cost per- click bid you set in your account, also called maximum CPC bid. This represents the highest amount that you’ll ever pay for an ad click (unless you’re setting bid adjustments, or using Enhanced CPC). In fact, you’ll be charged only the amount necessary to keep your ad at its position on the page.
Example
Let’s say you’ve set a maximum CPC bid of $1 for your ads. The most you’ll pay when a customer clicks your ad is $1. You’ll often pay less than your maximum bid, though, because with the ad auction you pay no more than what’s needed to rank higher than the advertiser immediately below you. The amount you pay is called your actual CPC.
Google decides which ads to show and their order based on an auction.
Control your costs
Now that you understand the basics of how costs work in AdWords, let’s look at the ways you can control your costs:
Set a daily budget to control how much you spend
Your daily budget specifies the amount you’re willing to spend each day, on average, for each ad campaign in your account. The size of your budget is entirely up to you and you can edit this amount whenever you like.
Recall that when you set your max CPC bid, the amount you’re charged for a click on your ad in a given auction could be less than your max. This means the amount you pay for a click on your ad – your actual CPC – will likely vary from auction to auction. Even though your actual CPCs may vary, your daily budget puts a limit on how much you can accrue in click costs from day to day.
Google may allow up to 20% more clicks in a day than your daily budget specifies. This is called overdelivery. Overdelivery can help make up for days when traffic is slow and your ads don’t get as much exposure. However, in a given billing period, you’re never charged more than the average number of days in a month (roughly 30.4) times your daily budget.
Example
If the budget for your ad campaign remains at $10 per day throughout an entire month, the maximum amount you would be charged for that campaign for that month is $304 ($10 x 30.4 average days per month).
Fine-tune your bids
If you use the cost-per-click bidding option, you set a maximum CPC bid for your ads. You can always lower your bid amount, but if you do, it may cause your ads to show up in a lower position on the first page of search results, to move from the top to the side or bottom position, or to be removed from the first page search results. In general, a higher maximum CPC bid can allow your ad to show at a higher position on the page.
Tip
You can have your bids automatically updated, based on the daily budget you’ve set. Then the system will actively seek out the most clicks possible given your budget. This option is called automatic bidding.
Create more relevant ads to get the most for your money
High-quality keywords and ads are an important way to make sure that you’re getting the most for your money.
You can raise your maximum CPC bid to try to get your ad to show at a higher position on the page. But you can also raise your ad’s position by improving the quality of your ads, keywords, and settings, without increasing costs.
To encourage high-quality ads, Google uses a measurement called Quality Score. The higher the quality of your ad, the less you pay for a given ad position, and vice versa.
Example
Let’s say your maximum CPC bid is $2. Meanwhile, your competitor has a maximum CPC bid of $3 but the quality of his ads are below average. Because of the higher quality of your ads, your ad could actually show in a higher spot on the page, even though your bid is lower.
How your ad’s relevance affects your costs and performance.
The Benefits Of AdWords
Whether you are launching a new product, would like to increase brand awareness, or drive in-store traffic — it’s possible to achieve your desired results with AdWords’ advertising products and measurement tools.
Here are some of the main benefits of using AdWords to address your marketing objectives:
Relevance
One of the main benefits of AdWords is the ability to target ads to users based on their interests, as well as a number of other factors like location, language, and demographic. With search targeting, marketers can respond directly to what a user is looking for with highly relevant ads. An advertiser can use Contextual Targeting to reach users across the Google Display Network as they read about specific topics related their products or services. Mobile Ads with location-specific messaging can be used to encourage in-store sales by reaching users with a location-specific offer when they’re on the go with a smartphone or tablet.
Return on Investment (ROI)
Since online advertising is more measurable than other forms of advertising, it’s easier to tell whether you are meeting your advertising goals. Every user’s click can be tied to a particular ad, keyword, and search query, all of which you can track and optimize according to your goals. If you spot a trend, you can create, modify, or delete keywords, ads, and campaign targeting selections on the fly. This allows you to respond quickly to changes and trends and improve your ROI even after your campaign has started.
Reach
Everyday, Internet users conduct billions of searches on Google, view millions of videos on YouTube and consume at least as many pages of the Display Network partners’ web content. When you use Google AdWords, you have the opportunity to target any segment of that broad worldwide audience that’s actively looking for or consuming relevant content about products, services, information, and websites. By giving your client’s products or services a presence during relevant user searches or while they’re pursuing their interests online, you can help them be visible to their target audiences at all the crucial points in the buying cycle — be it awareness, consideration, or purchase.
Common AdWords Terms
Using Google AdWords for the first time will introduce you to some new terminology. Here are a few of the most commonly used AdWords terms:
Keyword: The keywords you choose are the terms or phrases you want to prompt your ad to appear. For example, if you deliver fresh flowers, you can use “fresh flower delivery” as a keyword in your AdWords campaign. When a Google user enters “fresh flower delivery” in a Google search, your ad could appear next to the search results.
Placement: Like keywords, placements are another way for you to control where your ads appear. A placement is usually a website where you’d like your ad to appear. For example, if you select www.example.com/sports as a placement, your ad could appear on that site.
Image ad: A graphical ad, which can be static or animated, that runs on the Google Display Network. Also called a display ad.
Campaign & Ad Group: AdWords accounts are organized into campaigns and ad groups. You start with one campaign, which has its own daily budget and targeting preferences. You can have multiple campaigns running and might choose to create one campaign for each product or service you want to advertise. Within each campaign, you have one or more ad groups, which are sets of related ads, keywords, and placements.
Impression (Impr.): The number of impressions is the number of times an ad is displayed on Google or the Google Network. Monitor your impressions to see how many people your ad is shown to.
Click: If a customer sees your ad and clicks on it to learn more or to do business with you, it is recorded in your account as a click. Monitor your clicks to see how many people choose to enter your website from your ad.
Clickthrough Rate (CTR): Your clickthrough rate (CTR) is a metric that helps show how your ads are performing. The more relevant your ads are, the more often users will click on them, resulting in a higher CTR. The system calculates your CTR as follows: Number of ad clicks/number of impressions x 100.
Cost-per-click (CPC): Under the cost-per-click (CPC) pricing model, AdWords charges you for each click your ads receive. You won’t incur any costs if your ad is displayed and users don’t click it. CPC bidding is the default for ads running on Google and the Search Network. Most advertisers also choose it for their campaigns that focus on getting a direct response from their audience, whether a sale, sign-up, or other action.
Maximum cost-per-click (maximum CPC): The highest amount that you are willing to pay for a click on your ad. You can choose to set a maximum CPC for individual keywords or for all the keywords within an ad group.
Cost-per-thousand impressions (CPM): With some campaigns, you can choose to pay for views of your ad rather than clicks. The maximum CPM is the most you’re willing to pay for each thousand impressions, or views of your ad. CPM bidding is only available for campaigns that target the Display Network and not Google search or search partner sites.
Quality Score: Quality Score is reported on a 1-10 scale (10 being best), and is an estimate of the quality of your keyword, ad, and landing page combination. Quality score (along with your bid) is a major factor in determining your cost-per-clicks (CPCs). Higher quality ads can lead to lower prices and better ad positions. The components of Quality Score (expected clickthrough rate, ad relevance, and landing page experience) are determined every time your keyword matches a customer’s search.
Ad position: The order in which your ad shows up on a page. For example, an ad position of “1” means that your ad is the first ad on a page. In general, it’s good to have your ad appear higher on a page because it’s likely that more customers will see your ad. Ads can appear on the top of a search results page, on the side of the page, or on the bottom of the page. Ad position is determined by your Ad Rank in the auction.
Ad Rank: A score that’s based on your bid, the components of Quality Score (expected clickthrough rate, ad relevance, and landing page experience), and the expected impact of extensions and other ad formats.
First page bid estimate: The bid you likely need to set for your ad to be shown anywhere on the first page of search results.
Top of page bid estimate: On average, ads that appear on the first page or above the search results get substantially more clicks than ads that appear on other search results pages, or alongside the search results. To help you get your ads to show in these valuable positions, AdWords provides cost-per-click (CPC) bid estimates you can use when setting your bids. The top of page bid estimate is the bid you likely need to set for your ad to be shown among the ads at the top of the first page of search results.
First position bid estimate: The bid you likely need to set for your ad to be shown in the first ad position at the top of the first page of search results.
- Note on Ad position bid estimates: AdWords provides them as a guide, meant to give you greater insight with which to plan your bidding strategy — but meeting your ad position estimate isn’t a guarantee of ad position. Ad position will still depend on competition from other advertisers, the components of your Quality Score (expected clickthrough rate, ad relevance, and landing page experience), your CPC bid, the expected impact of extensions and other ad formats, your budget and account settings, and user and advertiser behavior.
Optimization: The process of optimizing your account’s quality and performance by modifying aspects of the account such as ad text, keywords, bids, targeting options, and more. Optimization may even include changing basic campaign settings or content on the landing pages. Optimization is the attempt to gain a measurable improvement, and therefore is performed against baseline values established prior (ie., once you’ve run traffic through your account for a certain amount of volume and time). AdWords professionals often refer to different levels of optimization, including campaign-level, adgroup-level, keyword-level, and landing page optimization.
Visit Google’s glossary to learn more common terms.
AdWords Ad Formats
Google Search Ads
AdWords search ad formats allow you to advertise next to, above, or below relevant Google search results, and across a network of partner search sites. With search ads, you can reach customers on all the devices they use to search for information.
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Google Display Ads
The Google Display Network lets you place ads on a variety of news sites, blogs and other niche sites across the internet.
How AdWords Works
Now that you’ve read the AdWords overview and understand how Google’s advertising program can help you grow your business, let’s dive into a few important AdWords concepts. To understand how AdWords works, it’s important to familiarize yourself with some key building blocks — like keywords, placements, Ad Rank, bids, and Quality Score.
How keywords trigger your ad to appear
Keywords are words or phrases you choose that can trigger your ad to show on search and other sites. For example, if you deliver fresh flowers, you could use “fresh flower delivery” as one keyword in your AdWords campaign. When someone searches Google using the phrase “fresh flower delivery” or a similar term, your ad might appear next to Google search results. Your ad can also appear on other websites in the Google Network that are related to fresh flower delivery.
Tip
By creating a list of keywords that are relevant to your product or service, and making sure they’re specific rather than general (for example, “fresh flower delivery” rather than simply “flower”), you typically can show your ad to the people who are most interested in your product or service. This improves your ad’s performance and helps your advertising dollars go further.
Placements: Advertising on non-search websites
Keywords can trigger your ads to appear next to search results on Google and other search sites. But keywords can also trigger your ads to show on other sites across the Internet — Googleowned properties like YouTube and Google’s partner sites like NYTimes.com or Families.com, for example. These are called “placements.” A placement can consist of an entire website or just part of a site. And these websites are all part of what is called the Display Network.
Google can automatically determine where your ads appear by matching your keywords to websites in the Display Network. Or, if you’d like greater control over where your ads appear, you can pick specific placements yourself. You can set bids for each and choose the sites where your ads might appear.
Ad Rank: How Google determines which ads appear in which positions
Now let’s suppose that multiple advertisers use the same keyword to trigger their ads or want their ads to appear on the same websites. How does Google determine whose ads will appear and in which order? It’s done automatically, based on what is called Ad Rank.
Your Ad Rank is based on a combination of your bid (how much you’re willing to spend) and your Quality Score (a measurement of the quality of your ads, keywords, and website). Depending on where your ad shows and the type of targeting that you use, the formula for Ad Rank can vary a bit, but it always incorporates bid and Quality Score.
I’ll go into more detail about Quality Score below; the important thing to know here is that the quality and relevance of your keywords, landing pages, and your ad are every bit as important to your ad’s rank as the amount you’re willing to spend.
Bidding and Quality Score
Your bid and Quality Score can work slightly differently across different campaigns types. Here are a couple of examples to help illustrate.
With a keyword-targeted ad on Google and its search partners, your bid would be your maximum cost-per-click bid — the maximum amount you’re willing to pay for each click on your ad. Your Quality Score is based on the relevance of your keywords, the quality of your landing page, your ad’s clickthrough rate (CTR), adjusted for its position on the page, and a few other factors.
In the case of a placement-targeted ad on the Google Display Network using Cost-per-thousand impressions (CPM) bidding, your Quality Score is simply based on the quality of your landing page.
There are a number of variations, but the general themes are the same.
How much you will pay
You’ll always pay the lowest amount possible for the best position you can get given your Quality Score and bid. To find this amount, Google looks at the Ad Rank of the ad showing in the next position (for example, for ads appearing on a Google search page, this would be the position just beneath your ad), and only charges you the lowest bid amount that would have beaten that ad’s Ad Rank, rounding up to the nearest cent. So regardless of your bid amount, you’ll only pay the minimum that’s needed to beat the advertiser below you.