Digital Marketing & Analytics

By Dr. Abhishek Nayak

Chapter 2 - Search Engine Advertising

INDEX
1. What is Paid Search?
2. How does Google Ad Auction work?
2.1. Quality Score
2.2. Ad rank
2.3. How is Cost per click (CPC) calculated?
2.4. Bidding Strategies
3. Creating a Campaign :Steps
3.1. Structuring your campaign
3.1.1. Setting bids and budgets
3.1.2. Creating ad groups and ads
3.1.3. Other Campaign Settings
3.2. Measure your results
3.3. Key Metrics to follow
3.4. Using tools to plan/ measure a campaign
4. Optimizing your Ad Campaign
5. Conclusion
6. References
1. What is Paid Search?

Search Engine Marketing (SEM) is a term used to describe the various means of marketing a
website via search engines, and entails both organic search engine optimization and paid
search strategies. Organic search is based on unpaid, natural rankings determined by search
engine algorithms, and can be optimized with various SEO practices. In contrast, paid search
allows you to pay a fee to have your website displayed on the search engine results page
(SERP) when someone types in specific keywords or phrases to the search engine. The SERP
will display the ads that you create to direct viewers to your site, and the fee you pay is usually
based on either clicks on or views of these ads. In other words, you can pay to rank on
sponsored search listings.

There are three main elements of a paid search campaign: keywords, ads, and landing pages.
You start out by giving Google a list of keywords, which tells Google to display your ads on the
results page when people search for those keywords. You then design your ads to be shown for
these keywords, and your goal is to make them both relevant enough to the search query and
attractive enough to get the searchers to click on them. Then, when viewers click on your ads,
the ads direct them to your landing pages. The goal of your landing pages is to get the visitor to
convert in some way – by buying your product, downloading an offer, etc. So paid search really
comes down to managing, matching, and optimizing these 3 things.

2. How the Google Ads auction works?

Google Ads determines which ads should show with a lightning-fast ad auction, which takes
place every time someone searches on Google or visits a site that shows ads.
A variety of factors will determine:
1. An advertiser’s eligibility for the auction
2. The subsequent order in which eligible ads appear on the page
3. How much each advertiser will pay if their ad is clicked

The first factor is how much an advertiser is willing to pay for a click. Advertisers set a maximum
bid (called Max CPC) that they’re willing to pay. Bids can be set at the individual keyword level
or at the ad group level (a grouping of related keywords).

The second is what’s known as an ad’s Quality Score, Once an ad is eligible for the auction, the
combination of Max CPC times Quality Score is calculated as Ad Rank to determine in what
position it will show.

The expected impact from your ad extensions and other ad formats - When you create your ad,
you have the option to add additional information to your ad, such as a phone number, or more
links to specific pages on your site. These are called ad extensions. Google Ads estimates how
extensions and other ad formats you use will impact your ad's performance. So even if your
competition has higher bids than yours, you can still win a higher position at a lower price by
using highly relevant keywords, ads, and extensions.

Together, these 3 factors determine when and if your ad will appear to potential customers.
2.1 Quality Score

While your bid does play a large role in determining whether or not your ad is served for a given
keyword, Google also uses something called „quality score‟ in making these decisions. Quality
score is an algorithm that scores each of your ads for relevancy – it looks at how closely your
keyword relates to your ad and how closely your ad relates to your landing page content. In
other words, Google actually scans your landing pages to ensure that you’re not just buying
keywords and directing them to totally irrelevant pages.

Google‟s motivation for including quality score in the evaluation of each keyword is to provide
an optimal user experience for their searchers. It used to be that ad placement was determined
solely by bids, but then someone could easily bid on „toothbrushes‟ when they were really
selling lawn mowers. Google introduced quality score to make sure that the ads they were
displaying were always relevant to the search terms, and to keep their advertisers in check. So
how does it work? Quality score is on a scale of 1 to 10, with 1 being the lowest rating and 10
being the highest.

Quality Score depends on multiple factors, including:

 Your click-through rate (CTR).

 The relevance of each keyword to its ad group.
 Landing page quality and relevance.
 The relevance of your ad text.
 Your historical AdWords account performance.

No one outside of Google knows exactly how much each factor “weighs” in the Quality Score
algorithm, but we do know that click-through rate is the most important component. When more
people who see your ad click it, that’s a strong indication to Google that your ads are relevant
and helpful to users.

2.2 What is Ad Rank?

Ad Rank determines the positions in which ads participating in the auction are shown. The
better the Ad Rank, the higher the position. The best Ad Rank gets the top ad position. It takes
into account an ad’s Quality Score and the advertiser’s Max CPC, plus the expected click-
through rate (CTR) impact of the ad extensions and formats available.

Here’s the basic formula:

Ad Rank = Ad quality score x Max CPC [+ a combination of other factors, including the context
of the search such as device and expected impact of ad extensions]

2.3 How is CPC calculated?

Ad Rank has a big impact on the actual cost-per-click (CPC). It’s often misstated that
advertisers pay one cent more than the advertiser in the spot below them. But that’s really just a
piece of the CPC calculation. CPC is calculated using this formula:

CPC = The Ad Rank of Advertiser Below/Quality Score + $0.01

In AdWords, because pricing is based in part on the Ad Rank of the next competitor, actual
CPCs can vary widely.
Here’s an example of what the ad auction looks like in practice:

Ad Rank (Max CPC Bid x Quality Score) determines the position in which an ad is shown. The
Ad Rank of the ad below is factored into the actual CPC that an advertiser will pay if someone
clicks on their ad.

2.4 Bidding Strategies

Choosing how you'll spend your money means choosing how you'd like to bid. Try choosing a
bidding strategy based on your goals, such as whether you want to focus on getting clicks,
impressions, or conversions. Bidding strategies include cost-per-click (CPC), cost-per-thousand
impressions (CPM) and cost per- acquisition (CPA).

 Cost-per-click (CPC) bidding: Use if you want to drive customers to your website.
 Cost-per-impression (CPM) bidding: Use if you want to make sure that customers
see your message.
 Cost-per-acquisition (CPA) bidding: Use if you want to maximize conversions on your
website.

Setting a daily budget

Your daily budget is the amount you're willing to spend each day, on average, for each ad
campaign in your account. But even though your actual costs may vary, your daily budget limits
the costs you can accrue over the average number of days in a month.

How much you're charged

If you're using CPC or CPM bidding, you’ll only be charged what’s needed for
your ad to appear higher than the advertiser immediately below you. If you're using CPA
bidding, the actual amount you'll be charged might exceed your specific bid. That’s because this
amount depends on factors outside of Google's control, such as changes to your website or
ads, or increased competition in ad auctions. However, our system is designed to adjust over
time, so the longer you use CPA bidding, the less likely it is that your actual CPA
will exceed your specific bid.
3. Creating a Campaign - Steps

When you start setting up your AdWords campaign, you'll need to choose a campaign type and
a campaign sub-type. The most commonly used campaign types include:

Search Network only

Ads can appear throughout websites on the Google Search Network. Your AdWords keywords
are linked to the words or phrases that someone uses to search on Google, then relevant text
ads are shown on search results pages.

Display Network only

Ads can show throughout the Display Network. This campaign type works by matching your ads
– including text, image, rich media, and video ads – to websites and other placements, such as
YouTube and mobile apps, with content related to your targeting.

Search Network with Display Select

Allows you to show your ads – including text, image, rich media and video ads – with search
results on the Google Search Network and relevant placements within the Display Network.
With this option, your budget is shared across both networks.

3.1 Structuring your campaign

AdWords is organized into three layers: account, campaigns and ad groups.

 Account: Your account is associated with a unique email address, password and billing
information.

 Campaigns: Each campaign in your account has its own budget and settings that
determine where your ads will appear.

 Ad groups: Each ad group within a campaign contains a set of similar ads and keywords
that you want to trigger your ads to show.

With AdWords, you'll organize your account into separate campaigns, with each campaign
focusing on a single business goal. One effective approach is to organize your campaigns
around specific themes or products. You control the following at the campaign level:

 How much you're willing to spend on clicks, impressions or conversions from your ads
 Networks and geographical locations where you want your ads to show
 Other top-level settings that affect your ad groups

Each campaign contains one or more ad groups. An ad group allows you to organize your
campaign into sets of ads and keywords that directly relate to each other, which can improve
your Quality Score and help to boost your return on investment. For Search Network
campaigns, this helps you show ads that are relevant to the searches of people that you’re
trying to reach. For campaigns targeting the Display Network, you can create relevant ads to
show to customers browsing websites about similar topics.
3.1.1 Setting bids and budgets

Once you have decided which networks you want to display your ads on and who you want to
show them to, you're ready to think about your budget. There are two things that you'll want to
consider:

 Your budget: Your daily budget is the amount that you set for each campaign to indicate
how much, on average, you're willing to spend per day.

 Your bidding strategy: Depending on which networks your campaign is targeting, and
your advertising goals, you can determine which strategy is best for you. (CPC, CPM or
CPA)

Google provides two options for bidding :

Manual bidding
This option allows you to control all bidding and essentially works the same as the setting for
your payment method. Even though it does give you more control, it also means
you have to log in more often to manage your campaign.

Automatic bidding
Here, you are passing some of the control to Google—which is great for the busy executive but
problematic for the control freak. A happy medium between these two lies in the ability to set a
so-called ceiling bid. This is when you tell AdWords the maximum bid you are willing to pay
without bidding more than that amount. It will then automatically adjust your bid -doing the work
for you!
3.1.2 Creating ad groups and ads

Each ad group contains a set of keywords, ads and bids that you manage. For your Display
Network campaigns, your ad groups can include other targeting methods, such as
demographics or remarketing lists.

Some of the main components of ad groups for campaigns that you'll run on the Search or
Display Network include:

a. Keywords

Tips for creating your keyword list:

 Choosing and organizing your keywords
 Think like a customer
 Align your keywords with your goals
 Group similar keywords into themes
 Researching new keywords
 Use the Keyword Planner or Display Planner
 Review your search terms report
 Optimizing your keywords
 Use keyword match types
 Include negative keywords

b. Ads
Depending on the type of campaign that you create, different types of ads formats and ad
extensions will be available. Keep in mind that all ads go through an approval process – we
want ads to be useful, varied, relevant and safe for users when serving them across the Google
Network. We review your active and paused ads, keywords and website according to our
advertising policies. Figure below shows the Ad creation template-
Types of ad formats include:

Texts, Ad extensions, Image, WAP mobile, App promotion ads, Instream video, Product Listing
Ads, Call-only ads.

Types of ad extensions include:

1. Manual extensions: App extensions, Call extensions, Location Extensions, Review

extensions, Sitelinks extensions, Callout extensions
2. Automated extensions: Consumer ratings, Previous visits, Social extensions, Seller ratings

Best practices for creating effective ads

 Connect your ads and keywords
 Highlight what makes you unique
 Include a call-to-action
 Match your ad to your landing page
 Tailor your ads for mobile
 Use ad extensions
 Experiment

3.1.3 Other Campaign Settings

There are a lot of additional settings which one can undertake while creating the campaign.
Some of the important ones are –

a. Delivery of Ads

Standard delivery
If your budget is limited or has yet to be determined, this is the option for you. It will space out
how often your ads are displayed, giving you a fairly even delivery. For example, if in spreading
your budget evenly Google estimates that it will only show your ad for approximately 40 to 50
percent of all searches pertaining to your product/service, it will only show your ad in every
second search. When the time comes to optimize your campaigns, this option will give you a
good idea of what times of the day your ad performs well. You should always set your delivery
to standard and monitor performance; if you find that you are not hitting your daily budget, you
can move onto the next option—accelerated delivery.

Accelerated delivery
If your budget is in any way limited, steer clear of this option! Here your ad will be displayed
each and every time someone searches—in line with the ad rank formula, of course. So if your
quality score and bid are good enough, your ad will display when someone searches. If your
quality score and ad rank as a whole are too low, the ad will not display—even if it's set to
accelerated delivery. There's no cheating in AdWords: Quality score and ad rank principles
override everything! While this delivery method certainly gives you more bang for your buck, you
should be cautious. If your ad is set to accelerated delivery and you have a limited
budget, it could be drained entirely in just a few hours!

b. Ad Scheduling & Rotation

Ad scheduling is particularly useful for businesses with fixed opening hours that may only wish
to show during the hours they're open. Or if your budget is very limited, and you know from
previous campaigns that most sales occur at specific times, you can set your campaign to show
during those hours.

When it comes to creating your campaign, you will see that the best practice for ad copy
dictates that you have two to three ads per ad group. This setting determines how the ads that
you create are rotated within that ad group. There are four options:

1. Optimize for clicks

2. Optimize for conversions
3. Rotate evenly
4. Rotate indefinitely

3.2 Measure your results

You can analyze basic account, campaign and ad group information using different data and
reports available in AdWords. There are also advanced reports that go beyond the number of
clicks or impressions that you're getting, allowing you to see the impact AdWords has on your
business. Some of the ways in which you can measure your campaign performance are given
below –

Customize your data

You'll want to think about your AdWords goals and decide which statistics are most important for
measuring progress toward those goals. Then, you can customize the data in your statistics
table to see how your campaigns, ad groups, ads and keywords are performing.

Dimensions tab
You can use the Dimensions tab to look at data across your entire account, an individual
campaign or an ad group.

Search terms report

The Search terms report allows you to see the terms that people were searching for when your
ad was shown. You can also see the performance metrics for those searches.

Top movers report

The top movers report lets you see which campaigns have the biggest changes (increases or
decreases) in clicks, costs and conversions, and shows you some possible causes for those
changes.

Auction insights
Use the Auction insights report to compare your performance with other advertisers who are
participating in the same auctions that you are.

3.3 Key Metrics to Follow

To use AdWords more effectively, it's important to understand the business goals that you're
trying to achieve and the data that's most relevant to those goals.

Measuring website traffic

If your main advertising goal is to drive traffic to your website, try focusing on increasing your
clicks and clickthrough rate (CTR). You'll want to start by creating great ad text and choosing
strong keywords so that your ads are relevant and compelling to your customers.
Measuring conversions
To measure your results, you'll need to make sure that you're measuring conversions.

Measuring return on investment

If you're using AdWords to increase conversions such as sales, leads or downloads, you'll want
to measure your return on investment (ROI) - the ratio of your net profit to your costs.

Measuring return on ad spend

Measure your return on ad spend (ROAS) to see how much revenue you're generating for each
dollar spent on your campaigns. Measuring your return on ad spend can give you insight into
how your campaigns are performing and optimize them based on your revenue.

3.4 Using tools to plan/ measure a campaign

AdWords offers several tools to help you build your campaigns and achieve your advertising
goals, including Keyword Planner and Display Planner. You can use Keyword Planner to build
your Search Network campaigns, getting keyword and ad groups ideas along with search
traffic estimates. Or, you can use the Display Planner to plan your Display Network campaigns,
getting targeting ideas along with impression estimates. Both tools allow you to add your plan to
new campaigns or existing ones, or download your plan to share with clients and colleagues.
As you get your campaign up and running, you'll want to consider several different tools that can
help you measure and optimize your ad performance. These tools include the following:

Conversion tracking
Conversion tracking is a free tool that can measure what happens after a customer clicks on
your ads - for example, whether they purchased your product, signed up for your newsletter or
filled in a contact form.

Google Analytics
Google Analytics is a free Google product that shows you how people found your site and how
they explored it, giving you ideas for how to optimize your website. You can also link Google
Analytics and your AdWords account to get an entire view of your customers' behavior.

Campaign experiments
AdWords Campaign Experiments allow you to test changes to your account - such as your
keywords, bids, ad groups or placements - on a portion of the auctions that your ads participate
in.

4. Optimize your campaign

Some of the ways in which one can further optimize the Google ads campaign are –

Improve your ROI

 Use a landing page that's most relevant to your ad
 Use highly relevant keywords and ad text
 Adjust your bids

Keyword tips
 Use negative keywords to eliminate unwanted clicks
  Remove duplicate keywords
 Optimize low-performing keywords
 Perform a keyword diagnosis
 Check your keywords' estimated first-page bids

Ad text tips
 Understand the buying cycle
 Enhance your ad with extensions

Bid and budget tips

 Experiment with bids and budgets to see what works
 Allocate your budget according to performance
 Adjust your keyword bids
 Use ad scheduling to automatically change your bids throughout the day

Keyword Match Types

When it comes to when your ad is displayed, you don‟t just want to pick a certain group of
keywords and have the ad shown only when those keywords are entered into the search
engine. Since there are an infinite number of ways that people can actually search for one term,
Google has 4 keyword match types that you can use to give them more specific instructions for
when to display your ads. These are: exact match, phrase match, broad match and Broad
Match Modified.

Exact Match

Let‟s say, for instance, someone searches for the term “red mens tennis shoes with Velcro.‟ A
keyword set to exact match will only display your ad if the search term includes that exact
keyword, with the words in that exact order. So, for example, if I have the keyword “red mens
tennis shoes‟ on exact match, and someone searches for “red mens tennis shoes with Velcro‟
my ad will not be displayed, since there were other words included, making it not an exact
match. My ad would only be displayed if the search query was exactly “red mens tennis shoes.‟

Phrase Match

A keyword set to phrase match will display your ad if the search term contains the same order of
the words, but it can also contain additional words. So if I have the keyword “red mens tennis
shoes‟ on phrase match and someone searches for “red mens tennis shoes with Velcro,‟ my ad
will appear. However, if they search for “mens red tennis shoes with Velcro,‟ it will not appear

Broad Match

A keyword set to broad match will display your ad when the search term contains any or some
combination of the words in your keyword, in any order. Your ad could also show for other
variations of the words, such as singular/plural forms, synonyms, etc. If I have the keyword “red
mens tennis shoes‟ on broad match, my ad could appear for the search terms –
“red mens tennis shoes with Velcro,‟
“mens red tennis shoes with Velcro,‟
“tennis shoe laces,‟
womens red shoes,‟ and so on.

Broad Match Modified

Google Ads recently introduced a new feature that lets you create keywords that are more
targeted than broad match, yet have a greater reach than phrase or exact match.

With modified broad match, you put a plus sign (+) in front of one or more words in a broad
match keyword. The words that are preceded by a (+) sign must appear in the user’s keyword
phrase exactly or as a close variation. The words that are not following a (+) sign will trigger ads
on more significant query variations. This feature can drive more traffic than phrase or exact
match, and attract more qualified traffic than broad match.

What are examples of modified broad match phrases?

Say your broad match phrase was “red purses.” That phrase could prompt ads on relevant
query variations like “red bags,” “colorful purses,” “women’s clutches,” etc. But if your modified
broad match was “+red purses,” the word red or some close variant would have to appear in the
keyword phrase.

Close variants include misspellings, singular/plural forms, abbreviations and acronyms and
stemming. So the query “redd purses” or “reddish bags,” for example, could trigger your ad.
If you made your modified broad match “red +purses,” the word purse or some close variant
would have to appear in the keyword phrase. Examples include “colorful purses,” “colorful
purse,” or “women’s purrses.”

Negative Keywords

Additionally, Google allows you to set keywords to a negative match type to help refine your
keyword strategy. This allows you to avoid having your ad displayed when a given search term
is entered. For example, if I set the keyword „used‟ to negative match, my ad won‟t show for
any searches that contain that word, such as „used tennis shoes.‟ Negative match keywords are
preceded by a minus sign, such as: -used.

5. Conclusion

Here are a few important takeaways to remember:

 Paid search is based on a pay-per-click (PPC) model.

 Account structure is critical. Organize your campaigns, ad groups, keywords, and ad
copy appropriately.
 Aim for high quality scores to increase performance and reduce costs.
 It‟s easy to waste money, so be careful how you choose to spend it.
 Use paid search to compliment your inbound marketing. Focus on mastering inbound
marketing first – blogging, driving leads, understanding search engine optimization, etc.
Find out what keywords are directing traffic to your site from organic search results, and
use these to inform your choice of keywords for paid search.
 Always be optimizing! There‟s never a shortage of ways to improve your paid search
campaign. Keep making improvements so you can drive your performance up and your
costs down and ultimately run a successful PPC campaign.
Summary of Main Metrics

Click Through Rate (commonly abbreviated as CTR) is the percentage of impressions that
turn into clicks. The more this percentage goes up, the more efficient your campaign is.
CTR = Clicks/Impressions

Conversion Rate is the percentage of clicks that turn into conversions. This is also a metric that
denotes increasing efficiency as it goes up.
Conversion Rate = Conversions/Clicks

Cost Per Click (or CPC) is the amount of money you‟re spending on each click. You can find
the average CPC by dividing the total spend by the total number of clicks. This is a cost metric,
so improving efficiency means decreasing this number as much as possible.
CPC = Spend/Clicks

Cost Per Acquisition (or CPA) is the amount of money you‟re spending on each conversion.
You can find the average CPA by dividing the total spend by the total number of conversions.
Again, this is a cost metric, so you want to keep lowering this number.
CPA = Spend/Conversions

6. References

 Art of Digital Marketing. Book by Ian Dodson

 6 Steps to Building a Brilliant Paid Search Account Structure. Available at :

https://www.wordstream.com/blog/ws/2015/03/06/adwords-account-structure

 What Is Modified Broad Match? Using the Broad Match Modifier in PPC. . Available at :
https://www.wordstream.com/blog/ws/2010/08/18/modified-broad-match

 Hubspot. The Beginner’s Guide to Paid Search

 Google. AdWords Fundamentals exam refresher guide

 How the PPC ad auction works. Available at :

https://searchengineland.com/guide/ppc/how-the-ppc-ad-auction-works

 What Is Google AdWords? How the AdWords Auction Works. Available at :

https://www.wordstream.com/articles/what-is-google-adwords
 How Google AdWords Works. Available at : https://blog.tryadhawk.com/google-
adwords/how-google-adwords-works/