Why gauging your AdWords performance is vital

If you have an AdWords account, it’s crucial you regularly check how well it’s performing. If you don’t, you might as well be running a charity for Google.

Here is a list of metrics that should help you gauge how well your account is performing:

Conversion tracking
In my years of managing AdWords accounts, I’ve come across many that don’t have a conversion tracking setup or are tracking completely the wrong thing.

For those who are unfamiliar with conversion tracking, it helps you understand what is happening on your website after someone clicks on your AdWords ad. Did they click on your ad and sign up for your newsletter, download or purchase your software?

It’s important to keep in mind that conversion tracking is only an indicator. Its accuracy depends on how people ultimately perform a conversion. For example, are there multiple people involved in the conversion process, do people use multiple devices or computers when performing a conversion, does the time between clicking on your ad to the point of converting last longer than 30 days? If these are true, you will have difficulties tracking conversions. Also, if you only see a small amount of conversion data, you won’t be able to act on it.

If you happen to have an account with ample conversion data, the following metrics should help understand your conversion performance.

Cost per conversion: The total AdWords cost divided by the total number of conversions. How much are you paying for all the conversions you just received? If each conversion is a sale, you should be able to use this information in order to tell if you are spending more on AdWords than you make in return.

Conversion rate: The number of conversions divided by the total number of clicks. The higher the number means more of your clicks are resulting in conversions.

Conversions: After someone clicks on your ad, what did they do on your website?

Total conversion value: This is the actual value for all the conversions received. When setting up conversion tracking you can assign a value to the conversion. Even if this is a dynamic value, you can inject it right into the conversion tracking code so it is reported back to AdWords. If this value is lower than your total cost for your AdWords traffic, it could mean that you are paying more for your AdWords traffic than you are making from it.

How are each of these metrics trending over time? Even if you don’t have a high level of accuracy with your current conversion tracking configuration, seeing how each of these metrics performs over time can help determine how your account is performing.

I’m sure that we can all agree that if the conversions are on an increasing trend, the conversion rate is also improving and if the cost per conversion is on the decline, you possibly have an ideal situation.

Cost
Depending on what your goal is, evaluating cost will be determined through the following values:

Average cost per click (CPC): The total cost divided by total clicks.

How does this value look over time? If it’s on the rise, it could mean your competition is stepping up their efforts? If it’s on the decline, it could mean your quality score has improved and you’re able to show your ads at a lower cost per conversion? Are you seeing a weekly trend? You might be seeing a situation where your average CPC is increasing during the middle of the week and declining over the weekend.

Total Cost: The total cost for all the clicks on your ads during a particular date range.

Are you using up your daily budget? Have a look at your cost for the past 30 days and divide it by 30. How has your cost been trending over time?

Cost per conversion: The total cost divided by total number of conversions.

If you have determined how much you are prepared to pay per conversion, you can use this value to see if you are paying too much for your AdWords traffic.

Keywords and Ads
To understand how your keywords and ads are performing, you need to analyse the following areas of your account: 

Clickthrough rate (CTR): CTR is calculated by dividing clicks by impressions. This value helps you gauge the performance of your keywords and ads.

If you have a low CTR, this could mean your keywords aren’t very relevant to the searcher. For example, if you were to bid on the keyword ‘fresh apples’ and your ads only spoke about how fresh your oranges were, it’s likely most people won’t click on your ads. This would result in a low CTR for your keywords and your ads.

If you have a high CTR, this could mean that your keyword and ads are seen as relevant to the searcher. It could also mean that your ads are compelling enough to click on. For example, if you were to bid on the term ‘buy HDTV online’ and your ads explained how you were giving away free HDTVs, I suspect you would see a large number of clicks on your ads.

Average position: The average position will tell you how your keywords and ads rank when compared with other advertisers. Depending on how your ad ranks, it will be shown either above or below other advertisers. Too far down on the page could mean that no one will see your ads.

Relevance is extremely important when it comes to AdWords. If your keywords and ads are relevant, you will most likely see a higher CTR. If your keywords and ads are less relevant, CTR is likely to be lower and could mean an increase to the amount you pay per click. Your ads will show less and less because Google want to show ads that are relevant to the searcher.

You might also be experiencing a low CTR because of a low average position. If your ads are displayed lower down on the page, there is the possibility they aren’t being seen or they’re not being displayed on the first page of search results. You ads might be relevant to the keywords but if no one sees your ads, you won’t receive many clicks but you will have those impressions. Your only option in this case might be to increase your bid so that you will potentially be display in a higher position. Also, keep in mind that increasing your bid does not guarantee a higher position. It all depends on how Google determine your relevance and your competition’s rankings.

How targeted are your keywords and Ads?

Relevant keywords and ads are the key to your AdWords success. CTR can provide some insight as to how targeted your keywords and ads are, however it is not the sole indicator. Sometimes, you need to have a second look at the keywords and ads to see if they are targeted.

Put yourself in the position of the searcher: If you search for one of your keywords, do your ads directly speak to that keyword? If your keywords are slightly related to your ads, you will have a difficult time making that connection with the person who just performed that search. How do your ads compare with your competitors ads? Are your competitor’s ads more compelling?

Search terms report:

Depending on how you bid on your keywords, Google could display your ads to people that aren’t interested in what you are offering. The search terms report will help you see the real terms that are triggering your ads.

For example, you may have bid on the broad match keyword music recording software. Your ads could be displayed to people that search for the word audio or sound. You might even receive clicks on your ads for terms like music download or download music. This is because broad match will trigger your ads for broader searches.

If you aren’t offering downloadable music, these clicks could become extremely costly. You can use the search terms report in order to find negative keywords so that you can exclude that type of broad traffic. 

Campaign structure:

How you have structured your campaign could have a direct impact on how much you pay each time someone clicks on your AdWords ads.

AdWords success is achieved by delivering relevance. If you have one campaign with one ad group, hundreds of keywords and only one ad, how relevant can that one ad be to hundreds of keywords? It can’t.

The ideal structure would be one keyword to many ads then each ad would be directly relevant to the keyword. The problem with that approach is managing the massive number of campaigns and ad groups needed to support that configuration. This is why you need to strike the right balance.

When someone searches for one of your keywords, showing them an ad that directly connects with that keyword is ideal. For example, if you are selling project management software and bidding on terms such as project management as well as online collaboration, your ads may perform better if you focus on those two areas separately. This is accomplished by creating multiple ad groups for each keyword theme.

You always need to be asking yourself if the keywords and ads in that one ad group connect with each other. Do they answer the search, question, or problem?

Once you understand how to gauge your AdWords account’s performance, you will be able to improve on it.