How a never-ending fight between CPC & Ad position impacts Conversion Rates

The parameters and methods for digital marketing have changed drastically in the last 5 years. With technological innovations coming in leaps and bounds, algorithms for online searches and analytical methods even make use of artificial intelligence.

The digital transformations have primarily been the result of evolution in consumer behavior with increased internet penetration into almost every aspect of life over a significant period of time.

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Advertising and marketing are the lifeblood of – businesses today, but digital marketing methods and tools are vastly different from traditional ones. And even the field of digital marketing has changed dramatically in the last couple of years.

Every company with an internet presence must handle several issues simultaneously whether it is learning about customer behavior, managing the brand and social presence on different platforms, finding the right mix of tools is important.

how to calculate CPC

There is a fine balancing act considering digital marketing companies use marketing tools from the following strategic categories:

1.Organic Social Media
2.Paid Social Media
3.Email Marketing
4.Display Retargeting
5.Programmatic Advertising
6.Website Testing
7.Video Hosting
8.Content Creation
9.Content Curation
10.Website Analytics
11.Customer Service
12.Search Engine Optimization

Tech -savvy customers and stiff competition require businesses to constantly work at keeping their brand front and center or lose market share.

Almost every brand today uses a blend of social media marketing and other tools to generate more traffic to -their websites. Companies must close the gap between a customer’s opinion and the perception of their online shopping experience.

Since this is the most critical element of a marketing and advertising plan, constant work on Conversion Rate Optimization is absolutely necessary.

As far as customers are concerned, experts say that they already do 80% of their research before they get to a purchase.

To influence a customer before they get to this point, companies have started paying for advertising as it now offers them more value for their money.

It is easy to target the right customer base. However, there is a constant debate about which one works better – Cost-Per-Click or Ad position and if a contest between the two in any manner affects the overall conversion rates.

Let us look at how the fight between CPC and Ad position impacts the customer conversion rates.

What Does CPC Or Cost Per Click Mean?

CPC refers to the actual price that you pay for each click in your Google Ads or PPC marketing campaigns.

A “click” on your PPC ads represents a visit or an engagement with the products or services offered by your company. Every single click represents attention from people who are searching for something that you are offering.

It is this “attention” that you are buying, and it is important to know two things:

The type of attention that you are going after
The amount you are paying for it

How to Calculate CPC?

The formula for CPC is:

CPC

Image: How to Calculate CPC?

 

As an advertiser, your CPC will always be equal to or less than your maximum bid because it is an average of bids against a number of competitors over a given period of time.

Given the way that auctions work in Google Ads, your actual CPC is going to be influenced heavily by you, as well as, your closest competitor’s ad rank, quality score and maximum bid.

How Cost Per Click Works?

Pay per Click or Cost per Click is used by websites to generate sales and revenue based on how many times a user clicks on an ad. Every search engine works at matching advertisers and publishers – and one of the biggest is Google Ads.

The desire to be in position #1. The urge to get ahead of competition. The notion that ads not seen in top 3 are not seen at all. Altogether these are common parameters among businesses using Google Ads.

The problem is that there are just too many business owners and subsequent marketing techniques reacting emotionally to Google Ads. Oddly enough, they have the data required to make decisions, but they are letting their ego get in the way.

The Quality Score metric is used to correlate ad relevance and keywords. Important variables like Click Through rate (CTR) and Keyword and / or content coherence are key to getting better traffic to a page.

CTRs are considered for every keyword and for an Ads account.
In case of keywords, it is essential to create an ad for each keyword group so that the Quality Score is positive.

One way to find out if the CTR is good is whether the ad is displayed at the top or / and on the very first page of search results where it is displayed based on its rank – because the higher the ad’s rank, the higher its position

Which essentially means that the score will determine where the ad will be placed and how much you may want to pay for it. Google uses the QS to prevent advertisers with a significant marketing budget at their disposal from buying keywords.

This also rewards those who use advertise using good principles and keyword use to make their ads better. Mastering the QS can result in good campaigns and lower per click payments.

What About Ad Position?

 

Ad Position
                           Image: What About Ad Position?

 

An ad position is where your ad is placed on a list of auction results.

Ad position, also known as ad rank is determined by the following formula:
Ad Position = Max Bid x Quality Score x Expected Impact of Extensions

For instance, if you get a position of 1, this means it was the first to be shown and no other brand precedes it. This position doesn’t indicate that yours will be first in search results.

It could be if there are no others in organic search results. If yours is 2, it could be 2 in order, above or below the search results. One way to check your position is to check the average position metrics or the top and absolute metrics to check the overall placement in a search results page.

Google uses an auction method to decide the position as well as which ads should be shown. This Ad Ranking also decides if your ads should be eligible for visibility.

To get a general idea, the Ad Rank has 5 elements:
1.A Bid
2.Ad quality and landing pages
3.Does your Ad meet the minimum thresholds?
4.Search context
5.Expected impact resulting form ad extensions and formats

Let’s look at a test case – if 5 companies are competing for the top 4 positions on a Google search page and their rankings are 80, 50, 30, 10, and 5.

If the minimum rank required to show search results is 40 then only the ones with 80 and 50 will show in the area about the search results.

If the minimum required to feature below the search results is 8 then the other two (ranks of 30 and 10) will show.

 

Ad Rank
Image: Ad Rank

 

As an advertiser, you must improve the quality of the ad and the landing page and raise your bid amount to get the top and absolute best location of the search results page.

So, does this mean that if an ad is good, it will have a better Ad Rank? Any time a person initiates a search and it triggers an ad that is competing in an auction, Ad Rank is calculated.

The calculation takes your expected CTR, bid, landing page experience, ad relevance and others into account before coming up with a number.

If you want to improve your Ad Rank, you should work on your ad’s click through rate, search relevance and landing page quality.

Do Keyword Variations Have A Role to Play?

Assuming that you are facing tough competition in the industry and cannot afford a huge Google Ads budget, you can benefit from performing additional keyword research. Look for different keyword variations. You can make use of Google’s Keyword Planner tool to get additional ideas.

 

Keyword Variations
Image: Do Keyword Variations Have A Role to Play?

You can even filter searches in the Keyword Planner and request the tool to show average CPC estimates for each keyword.
Which Is Better for Conversion Rates – CPC Or Ad Position?

Unlike 3 or 4 years ago, there are ways to get good rankings, visibility and conversion rates without having to be No.1 with a specific keyword.

The average position is what is called a dependent variable and conversion rates are not influenced by Ads metrics. Your average position should be determined by your CPA goals and conversion rates. By controlling what you can do, your ad position will be the output.

Variables like average order value, landing pages, product margin, return on Ad Spend and others are key to your target Cost Per Action. What many don’t realize is that there is no correlation between conversion rates and ad ranks.

If you can get these under control, you can get the top position, and not the other way around. Make sure to have a CPA goal and price range which will lead to profitability.

Keep in mind that you don’t have to show up all the time for a specific keyword. Don’t make the mistake of spending a lot of money to attract more volume. Figure out whether your offer is good enough to keep you in the game.

Even if your ad is in position 3, you will get a lot of clicks. The takeaway here is to bid so that you are profitable – don’t go for position.

There is plenty of data to indicate that this is true – sticking with data which has been analyzed right will offer better insights into structuring your business.

Factors like time of day scheduling and keyword positions can play a key role in higher conversion rates. It is not necessary to be at the top all the time.

Growth Marketer | Co-founder Amol is a Chief Growth Strategist at upGrowth.ways of lead generation, quick optimization tricks, and easy to implement growth hacks are his specialties. He loves to read book and share his knowledge through trainings in free time.
February 22nd , 2019

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