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We've heard your requests for a cost-per-acquisition (CPA) bidding tool so we're excited to introduce a new AdWords feature: the Conversion Optimizer beta. Conversion Optimizer helps you meet your ROI objectives by automatically managing your bids according to a maximum CPA goal. By automating the bidding process, this feature helps you minimize your conversion costs while saving you time.Here's how Conversion Optimizer works: simply specify a maximum CPA bid and the Conversion Optimizer does the rest. It uses historical information about your campaign and automatically generates optimal CPC bids for each auction. You still pay per click, but you no longer have to manually adjust your bids to reach your CPA goals. Since the Conversion Optimizer can choose a new bid for each auction, you're provided with the additional benefit of spending money only on the search queries and sites where your ads are likely to convert. You can read more about how the Conversion Optimizer can manage your costs here.
In order to accurately predict your conversion rate and optimize your bids, the Conversion Optimizer requires that your campaign currently uses AdWords Conversion Tracking and has at least 300 conversions in the last 30 days. The Conversion Optimizer tries to keep the cost of each conversion below your CPA bid. However, if the actual conversion rate is lower than we predict, your CPA may exceed your CPA bid.
There are now two ways to bid using CPA: The Conversion Optimizer and Pay-Per-Action (PPA) beta. PPA lets you pay only when an action you define occurs (e.g. a newsletter sign-up or a purchase on your site). PPA ads are only shown in specific places on the content network -- a majority of PPA ads appear on publisher sites that use Google referrals, and a small portion of these ads also show up in AdSense for content ad units as part of a beta test. If you use the Conversion Optimizer, your ads can appear on both the search and content network. To learn more about when to use Conversion Optimizer and when to use PPA, please see this page in the AdWords Help Center.
In part one of the series, I explained that it's important to measure ROI because this metric gives you the complete picture about the profitability of the keywords in your AdWords account. This week, I'll cover how to start collecting ROI data in your own AdWords account. Since ROI depends on how often you convert clicks into customers and how much profit you make on every transaction, you'll need to enable conversion tracking with conversion values in your account. Let's take a look at how to do this.Conversion tracking is a free tool available in every AdWords Standard Edition account, and can be found by clicking on the 'Tools' link under the 'Account Management' tab. Once there, to start tracking ROI, click 'Start Tracking Conversions' on the Conversion Tracking page. In the two screens that follow, select the type of conversion you wish to track and the colors for the text block on your conversion page. The third page in the setup process is where you set the monetary value of the conversion by clicking the link 'Advanced option: conversion value' and entering your profit for the conversion.You may remember from last week that we defined ROI as your profit divided by the cost of AdWords. AdWords will automatically track the amount spent on ads but you, as the business owner, must define the profit every time a conversion takes place. If every transaction has the same profit (e.g. when you sell a subscription for a fixed price), you can always set the same numeric value that represents your profit for the conversion. When you're selling items with different profits, you can set a different value for every transaction. Calculate the value to set by subtracting the cost of the item from the price for which you sold it. Note that your numeric value should not include a currency symbol and needs to use the decimal separator appropriate for your interface language. More details on entering your conversion values may be found here.Your webmaster, or the person in charge of your website, can also use dynamically generated values to set the right profit value every time a conversion happens. We've documented the details of this process in the conversion tracking setup guide (.pdf).Once conversion tracking is active, you'll see a few new columns in your account labeled 'Conv. Rate,' 'Cost/Conv.' (where Conv. is the abbreviation for Conversions) and 'Conversions'. Notice that ROI is not one of the new columns. To see your ROI based on your conversion tracking information you'll need to run a Keyword Performance report from the 'Reports' tab. Be sure to include the 'Value/cost' column (which is your ROI expressed as a percent) from the 'Add/Remove columns' menu. You'll probably want to save this report as a template and schedule it to run periodically. Note that you also have the opportunity to give your report/template a descriptive name, such as 'ROI Report by Keyword.'For your reference, here is an example of such a report, with the Value/cost column highlighted:(Click screenshot for a full-size image)With your report in hand, you can see the ROI for every campaign, ad group and keyword. Any time the Value/cost is greater than 100%, you're making money, and the higher the value, the more profit you're making. This is powerful data that can help you optimize your account -- and next week I'll give some specific examples of how to use this data to give yourself an edge over your competitors.
I've heard it said at conferences that online advertising is the most cost-effective way for businesses to attract new customers -- but how exactly is such a claim measured? Well, one of the beauties of AdWords is that results are easily measured. Not only do advertisers get reports about clicks and impressions within their account, they can also track conversions of visitors to their site. One possible downside of having all that data, however, is that advertisers may become distracted by tracking lots of metrics at the expense of losing focus on the ones that matter the most.On the other hand, many advertisers don't spend much time at all monitoring their campaigns. They might check only one metric, such as impressions, clicks, CTR, or their overall spend -- and so long as they don't see anything obviously amiss, they don't make any changes to their ads, maximum CPCs, etc.Regardless of how much or how little an advertiser measures results, it's possible to miss out on potential profit if close attention isn't paid to the one metric that almost certainly matters the most: ROI. And while impressions, clicks, CTR and costs are all important components that contribute to the ROI, these metrics only show part of the picture.The ROI metric can be defined in two ways: the revenue generated for every dollar spent on ads, or the amount of profit generated from every dollar spent on ads. I'm going to focus on profit here, since that's what most advertisers inquire about.The formula for ROI is as follows (keeping in mind that the "revenue minus cost" in the top line equals profit):For any campaign where the advertiser's goal is to get a conversion, whether it be a sign-up, a sale, or something else, the ROI should be greater than 100% -- which simply means that for every dollar spent on AdWords, they've made a profit. The greater the ROI number, the greater their profit.Here's an example -- let's say an advertiser has two keywords ('flower delivery' and 'fresh flowers') and spends $50 on each. For the same $50, the advertiser receives 50 clicks for 'flower delivery' and 100 clicks for 'fresh flowers':KeywordImpressionsClicksCostAverage CPCConversionsProfitROIflower delivery1,00050$50$1.005?? fresh flowers1,000100$50$0.5010?? Based on the data in the table, the keyword 'fresh flowers' seems like the better of the two because it has a lower average CPC and it leads to more conversions (sales). But without tracking the ROI on both keywords, an advertiser would have to guess whether it makes sense to change the bids for these keywords. If they were only looking at the average CPC or the conversions per keyword, they may be making assumptions that could end up costing them money.Now, here's that table again -- but with figures added for ROI:KeywordImpressionsClicksCostAverage CPCConversionsProfitROIflower delivery1,00050$50$1.005$100200%fresh flowers1,000100$50$0.5010$50100%Notice that the keyword 'flower delivery' has a much better ROI, even though it generated fewer conversions and fewer clicks for the same advertising cost. This could be the case for a variety of reasons -- for example, users who clicked on the 'flower delivery' ad may tend to buy products with a higher profit margin. The average profit per sale on the keyword 'flower delivery' is much higher ($20) than 'fresh flowers' ($5), which justifies the higher CPC for the keyword 'flower delivery', even in light of fact that it receives fewer conversions.When an advertiser tracks and monitors their ROI, they are seeing the complete picture. This allows them to make smarter decisions about their online ads and, ultimately, make their business more profitable.
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