Premium Auction vs Low-Quality Auction
A premium auction in PPC means that Google believes this traffic is of higher quality and converts better. Premium ad auction (PAA) will cost more than a low-quality ad auction (LQAA). We will find out why CPCs are not a KPI to optimize for. You will usually see an increase in CPC cost when your ads are entering more PAA. But PAA also enjoys higher conversion rates than LQAA. If you look at your High CPCs and began frantically optimizing and removing those keywords that are relevant to your business, you will stand to lose a lot of revenue. An increase in averages CPC may just mean that your ads are participating in more PAA, it is showing where traffic is most likely to convert.
Because of the Premium Auction factor, when a well-managed account sees high CPCs, it will usually follow with a higher conversion rate. The downside is that you will almost always see an increase in CPC, because your market values the PAA as much as you. Hence, the average CPC is increased.
The increase in CPC should not cause panic as long as your CVR (conversion rate) is increasing on a higher scale.
Let’s explain this.
CPC increase isn’t necessarily a bad thing
If your current CPC is $2 and you are getting a CVR of 5% (meaning 5% of all ad clicks turn into sales) your average CPA will be $40.
You wake up today and find that your average CPC has increased to $4. What a shocker! You begin running around trying to find out which search terms caused the spike in spending. What you fail to see is that the CVR is now up 12%. Doing the calculation, your new CPA becomes $33.
You are actually saving money as your cost per conversion has dropped by $7. Despite CPC increased by 200%, CVR has increased by 240%. Overall it is still profitable to bid on. This is because your CVR increased 40% more than your CPC.
This is a classic example of PAA at work. You are paying more for these premium traffic because Google determines that these people are more likely to convert or convert at a higher value than your normal users.
As long as CVR increase is larger than CPC increase, it is worth to bid on.
Let’s have another example. Many advertisers have a reluctance to expand to Display ads because he believes it is filled with “junk traffic” and a bunch of “mobile gaming spam clickers”. Once again we must let the result do the talking, and not our mere assumptions.
Let’s say you are running a new advertising campaign for a new toothpaste brand called “Charlie”. Company Charlie is running ads on Search & Display Network. The results are as follows.
Display Network $0.10 CPC > 0.5% CVR > 20 CPA
Search Ads BoF $2.50 CPC > 5% CVR > 50 CPA
These are very normal costs and performance you will see in an ad account. In this case, the display network converted 10x lower than search network, but it actually costed 25x lesser! (2.5/0.1)x100% = 25
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Those advertisers who quickly dismiss display traffic as “junk and spammy” will be shocked at the opportunity they just left on the table. Once again, this shows that it pays to experiment without having any pre-assumptions of what is good or bad.
Does that mean we exclusively use GDN and avoid Search Ads?
In this case, what if a client is successful in GDN and not on Search Ads? If you think the solution is to funnel all the budget from Search to Display, you would have lost out on the Bottom-of-Funnel (BoF) traffic. It is still important to consider the average CLV of a customer. Search Ad may not be profitable for on the initial conversion, but if an average customer returns 3-4 times a year, it is still OK to have your Search Campaigns running as long as you are optimizing and watching over it.
In many cases, you do not want to pull the plug on a network just because it is not profitable, especially for BoF Search Ads. Because it is a turf worthy to defend for. You want to be there when your customers are ready to convert. Even if it is traditionally not profitable for your market to bid in Search Ads. If you don’t do it, your competitors will. Keep the costs down, keep optimizing and ensure you are spending on the relevant search terms.
Let’s compare the opposite scenario. If your Search ads are profitable but Display and Discovery campaigns are not producing the results you like. What do you do? You have an option to pull the plug on them. Why? You can argue that Google is not showing your ads to the right audience. Audiences may not be entirely relevant and you should temporarily pause those campaigns. Then you can settle for a Remarketing-Only Display Campaign. At least you are targeting the traffic who had interacted with your business before.
As for pausing Search ads in favor of Display, it is a risky endeavor. You already know your audience’s intent, they are looking for you. Especially when you are targeting non-broad match keywords. If Search ads are not profitable, you may use a conservative budget while funneling the main budget into your other campaigns.
Search Partners vs. Google Search Network
There is an option to turn on Search Partners when running Search campaigns. The traditional, widely accepted approach in the PPC world would be, “Turn it off, Google trying to steal from you.” has become redundant now in the world of smart algorithms and machines. Especially when we factor in Premium Auction that we discussed earlier, a click on “ask.com” may cost you only $0.25, whereas “Google.com” may cost you $1. If you sell Transformers Lego Sets, Search Partners, in this case, would allow you for 4 clicks of your keyword, instead of only 1 click on Google.
Google knows Search Partners traffic is not as valued compared to a search on Google.com. Thanks to their smart algorithms, those clicks are usually cheaper. They cost less. As long as you are profitable, you should leave it on. The way you check this is to navigate to your Search Campaigns > Keywords and then click “Segment” on top of the table and choose to segment your data out by Search Partners.
Let me dive deeper into this while we are on Search Campaigns, should you turn on Display Select? I would argue not to. Because display traffic and search traffic are very different in nature. One always has intent, the other does not. For most advertisers, it is still valuable to keep Search Partners on and Display Select off. As of now I still recommend advertisers to keep this off, but it may be entirely different before 2022 hits. This is the quote from Google on how Search with Display Select works.
“The Google Display Network is a collection of more than 2 million websites, videos, and apps. When you choose this option, your campaign will also run on the Display Network with no additional setup. Your ads will appear only when they’re predicted to be effective and you aren’t using all your budget on Search. Display performance won’t impact your Search Quality Score.”
Here are 2 key takeaways that Google has laid out when using Display for Search.
- Your ads appear on the display network when they are predicted to be effective.
- When you are not spending all your budget on Search.
- It won’t impact your Quality Score.
Seems like Google is taking this as a 2nd priority and will enter display auctions when your Search is not spending enough of the daily budget. We shall see how this plays out in the future, but for now, I would advise not to turn it on.
When it comes to Google ads advertising, the advertiser is given a multitude of channels to advertise on. It is important to keep in mind where each channel is targeting on the funnel. How different channels have different prices because of the premium vs low-quality auctions scenario. Think of how you can use different channels to reach your customers and hit your KPIs. Don’t exclusively decide on Search only because it is the best traffic. But also look out for upper funnel traffic which you can acquire customers at a much cheaper price while hitting your conversion rates.