Reflective notes adwords bidding process

1. Reflective Notes – Bidding and Evaluation Process in Google
Adwords
Submitted by: Shubha Brota Raha, EMBA 2011-14, SIBM Bangalore
Assignment:
Submit a detailed note of your understanding of the bidding and evaluation process in
Google Ad words for CPC and how your ad is finally selected for display in the search page.
Make your own assumptions of Max Bid and Quality score for your keyword(s).
Google Adwords
Google Adwords is the system Google has developed to assist you in marketing your
products or services in the Google Search Engine, and its affiliate sites, via the use of a
placed text ad that appears when people search for phrases related to your offering, this
appears as a “sponsored link”. The system is a “pay per click” system, this means you can
dictate where your ad appears through bidding for a series of phrases, but you only pay the
amount you have bid for if someone clicks on your ad as a result of a web search, i.e. pay
per click.
The ads take the format of a short text ad that includes a title line, two short descriptive
lines and a URL link to a website or a specific website page. The ad will appear on the page
of results you decide you want to appear in. For instance page 1 of Google for a search
result. The ads appear at the top and to the right of the organic search engine results. You
can also pitch at what position on the page your ad will appear, through the amount you
bid. Crudely this may mean the more you bid for a phrase, the higher your ad appears on
page 1 of the Google Result.
Benefits of AdWords
 There is no minimum spending limit with Google AdWords
 AdWords allows an unlimited amount of changes to an account per month
 Google Ads appear primarily on the right hand side of the screen or above the
search results and are titled “sponsored links”
 Your ads will appear when a user’s search query includes a keyword that is part of
your ad campaign
 You control the budget for your advertising campaign. You can set a daily budget and
Google will stop showing your ad when you reach the daily limit
Some Important terms:
• CPC – Cost per Click – You are charged every time a user clicks on your ad, but
not every time your ad appears in the search results
• CPM – Cost per Impression – You are charged every 1,000 times your ad appears
on Google whether it is clicked or not

2. • CTR – Click Through Rate – Clicks/Impressions x 100 = CTR%
• Rank Number: The result of your CPC bid x Quality score
• CR (Conversion Rate) = Total Conversion / Total Clicks * 100
• Cost per action, or CPA – sometimes referred to as cost per acquisition – is a metric
that measures how much your business pays in order to attain a conversion.
Generally, your CPA will be higher than your cost per click, or CPC, because not
everyone who clicks your ad will go on to complete your desired action, whether it’s
making a purchase or filling out a form to become a lead
• Value per Click = CPA X Conversion Rate
Google Adwords Bidding Process:
This is a process where you bid on your choice of Ad words, keywords or keyword phrases,
depending on how much you can afford and how effective the word is. The purpose is to get
your product or service at the top of ads advertised in various websites. You have the option
to increase your Cost Per Click (CPC), Pay Per Click (PPC), or Cost Per Action (CPA.)
CPC bid refers to the amount we’re willing to pay for a click on our ad when the ad appears
on Google or one of our partner sites. CPC bidding is recommended if you're mostly
interested in getting traffic on your site
Two options for CPC bidding:
o Automatic bidding
o Manual bidding
The meat and potatoes of your Google AdWords campaign is your bidding and budget
strategy. Matching your target audiences’ needs with your content or products is
paramount, but if you can’t get it done at the right price all your efforts are quashed. Below
I will review the options available to you within the bidding and budget section of your
Google AdWords campaign.
The first order of business will be to establish the maximum amount you are willing to spend
on your particular campaign. This can be changed at any time but if you are just starting out
with AdWords make sure to keep your daily budget low and get a feel for the process. The
last thing you want to do is start out with a few generalized keywords that rack up spend
and leave you with 0 conversions. Creating a low ceiling can help you optimize your
campaigns without breaking the bank.

3. The basic options for bidding and budget are displayed above. Here you can allocate the
daily budget for your campaign and select your bidding option. Your cost-per-click (CPC) bid
is the amount you’re willing to pay for a click on your ad. You can have the AdWords system
manage your bids by choosing automatic bidding, or you can manage the bids yourself. If
you are just starting out I recommend manually setting your bids so that you’ll have an idea
of what kind of traffic you receive at what price.
Once you’ve selected manual bid, the default bid box will appear and allow you to set the
maximum CPC you are willing to pay across all keywords in the campaign. You can however,
set unique CPC bids for specific keywords that will override this setting. Next you’ll enter in
the amount per day that you are willing to spend and select the delivery method of your
Ads. Standard will display your Ads slowly over the course of the day and accelerated will
show your Ads as quickly as reasonably possible. I recommend selecting standard if you
have a limited budget and are unsure what time of the day is best for your end goal.
Staying within bidding and budget, if you select Advanced Options a few more settings
become available to you. Now if you use AdWords to maximize your bids within your budget
you can designate a CPC bid limit. Selecting this option will maximize the bids within the
target budget but will not bid above the CPC you designate.

4. Bidding Process Maximization:
In the bid chart above, we can see that a bid of $5.00 truly does not maximize the expected
profit, since there is a higher expected profit if the bid is $4.00. In this example, one would
probably want to bid a little bit more than $4.00 so you can get your ICC [incremental cost-
per-click] as close as possible to the $5.00 value per click
The incremental cost-per-click from one bid to the next is simply the additional cost incurred
divided by the additional number of clicks you receive. To bid optimally, it is important to
know the ICC. Whenever your value per click is less than the incremental cost per click, it
will pay you to lower your bid in order to reduce your cost. Conversely, if your value per
click is higher than your incremental cost per click, you should increase your bid.