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Complete Guide to Analytics behind Google

Ads (Adwords)

23-29 minutes

If you do multi-channel marketing for your company, then

you simply can’t afford to ignore Google Adwords.

In order to get optimum results from your Adwords

campaigns, you need:

#1 Good practical knowledge of how Adwords really works

#2 You need to know how different Adwords metrics are

calculated and

#3 You need to know, how different campaigns, ad groups,

keywords and landing pages are analysed  and optimised
for traffic and conversions.

If Google Adwords is a total mystery to you then this article

is going to help you a lot.

If you are already familiar with adwords reports then also

you will learn tricks, which not even many, very experienced
adwords optimizers know about.
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Introduction to Adwords Auction

Whenever a user performs a search on Google (or its
search partners), Google run an auction for clicks known as
the Adwords Auction.

To participate in an auction you have to bid. Similarly to

participate in Adwords Auction, you have to bid on
keywords.

Each Adwords auction decides ad(s) that will be shown to

a user at particular moment in time and ad space.

Types of Bids in Adwords Auction

There are 4 types of bids which can be placed in an
Adwords Auction:

1. CPC (Cost Per Click)

2. vCPM (Cost Per Thousand Viewable Impressions)
3. CPA (Cost per acquisition)
4. CPV (Cost per view)
Cost Per Click (CPC) Bidding
In case of CPC bidding you pay for each click on your ad.

CPC bidding is suitable, if you are mostly interested in

getting traffic to your website from Adwords Ads.

You can run CPC bidding for search and display ads.

You can adjust your CPC bids manually (via manual

bidding) or you can let Adwords adjust the CPC bids for
you (via maximize clicks or automatic bidding) to get the
maximum possible clicks within your budget.

In case of automatic bidding, the bids are automatically

adjusted based on: user’s device, browser, operating
system, language, location, time of day or whether or not
the user is on, one of your remarketing lists.

The advantage of manual bidding over automatic bidding is

that, you get more control over bid adjustment.

In case of manual bidding, you can adjust CPC bids at the

ad group level or for individual keywords or ad placements.

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Cost Per Thousand Viewable

Impressions (vCPM) Bidding
An impression occurs when Adwords auction decide to
show your ad to a user at particular moment in time and ad
space.

Viewable impression occurs when your ad is actually

viewed by a user.

In case of vCPM bidding, you pay every thousand times

your ad appears and is viewable.

vCPM bidding is suitable if your main focus is on branding

and getting site visibility.

You can run vCPM bidding for display ads.

You can adjust vCPM bids at the ad group level or for

individual ad placements.

Cost Per Acquisition (CPA) Bidding

In Google Adwords, Conversion and Acquisition are same
thing.

So cost per conversion is same as cost per acquisition.

Cost per acquisition is the maximum amount you are

willing to pay for each conversion.

In case of CPA bidding, you still pay for each click on your
ad but you don’t manage your bids manually to get
conversions.

The bids are automatically managed by Google Adwords to

get the maximum possible conversions at the CPA you set .

This type of bidding is suitable if you are mainly interested

in getting conversions.

Use CPA bidding for search, display and shopping ads.

Note: In order to use CPA bidding, you must have

conversion tracking enabled in Adwords and your ad group
or campaign must have received at least 15 conversions in
the last 30 days at a similar rate for at least few days.

Cost Per View (CPV) Bidding

In case of CPV bidding, you pay for each video interaction.

This video interaction is generally video views but it can

also be clicks on Call to action overlay or other interactions
recognized by Adwords.

This type of bidding is suitable, if you are mainly interested

in getting engagement for your video contents. Use CPV
bidding for video ads.

Bid Strategy and Types

A  bid strategy (bidding strategy) defines how you plan to
manage your bids and how you plan to pay for users’
interactions with your ads.

There are two broad categories of bid strategies:

#1 Manual bid strategies – where you adjust your bids

manually.

#2 Automated bid strategies – where Google Adwords

adjust bids, on your behalf.

A bidding strategy that is applied to a single campaign is

called a ‘standard bid’ strategy.

A bidding strategy that can be applied across multiple

campaigns, ad groups and keywords is called a ‘Portfolio
bid’ strategy (formerly known as flexible bid strategy).

A standard bid strategy can be manual or automated.

A ‘Portfolio bid’ strategy is always automated.

Automated Bid Strategies

Automated big strategies are used by Google Adwords to
adjust bids, on your behalf.

Google Adwords provide 6 different types of automated bid

strategies:

#1 Maximize Clicks bidding (formerly known as automatic

CPC bidding) – use this bid strategy, to let Adwords get
maximum possible clicks for you, within your budget.

#2 Target Search Page Location bidding – use this bid

strategy, to let Adwords increase the chances of your ads
appearing on the first page of search results or at the top
of the first page of search results.

#3 Target Outranking Share bidding – use this bid strategy,

to let Adwords automatically adjust your bids, to outrank
your competitor’s website in search results.

#4 Target CPA bidding (or CPA bidding, formerly known as

Conversion optimizer) – use this bid strategy, to let
Adwords automatically adjust your bids, to get the
maximum possible conversions at the CPA you set.

#5 Enhanced CPC bidding – use this bid strategy, to let

Adwords automatically adjust your manual bids, to get the
maximum possible conversions, while still keeping control
of your keyword bids.

#6 Target ROAS bidding – ROAS stands for ‘Return on Ad

spend’. Use the target ROAS bid strategy, to let Adwords
automatically adjust your bids, to get the maximum
possible conversion value at the ROAS you set.

Difference between Max. CPC, Actual

CPC & Avg. CPC
Max CPC is the maximum amount you are willing to pay for
each click on an ad.

Actual CPC is the actual amount you pay for each click on
an ad.

Avg. CPC is the average amount you pay for each click on
an ad.

The actual CPC is usually less than the Max. CPC because
you need to pay only that much to Google which is good
enough to rank your Adwords ad higher than the advertiser
immediately below you.
Actual CPC = Ad Rank of the competitor below / Quality
Score of the advertiser

To get a sense of your actual CPC look at the Avg. CPC

column in your Adwords reports.

Ad Position
It is the position of your ad on Google Search Result Page.

Your ad can appear on the top of the search result page, on

the side of the page or at the bottom of the page.

Ad position of 1 means, your ad is the first ad on a search

result page.

Similarly, ad position of 8 means, your ad is the 8th ad on a

search result page

Higher is your ad position, higher is the probability that

searchers will see your ad and click on it.

So you should aim for high ad position.

The ad position is calculated by Google Adwords system

via ‘Ad Rank‘.

Quality Score
Quality Score is a factor used by Google Adwords system
to determine how relevant your keyword (on which you are
bidding) is to the user’s search query, your ad copy and the
corresponding landing page.

Most of the time when we talk about the quality score, we

refer to the quality score of a keyword.

However we can also have quality score of a display ad or

mobile ad.

So there are three types of quality scores in total:

1. Quality Score of a keyword – it is used when the ads

appear on Google Search Network.
2. Quality Score of display ad – it used when the ads
appear on Google Display Network
3. Quality Score of mobile ad – it is used when the ads
appear on Mobile devices.

Quality score is measured as a number from 1 to 10, where

1 is the lowest quality score and 10 is the highest.

Note: Quality score of a keyword is re-calculated each time

it triggers an ad. If the quality score of your keyword is very
poor (like 1 or 2), your ad may not be eligible for ad auction.

Higher your keyword’s quality score, higher will be your ad

position and ad rank and lower will be your first page bid
estimates, top Page bid estimates and your actual CPC (i.e.
less amount you will have to pay for each click on your ad).

First page bid estimates

It is the approximate CPC bid needed, for your ad to appear

on the first page of Google Search result.

This bid estimate is based on quality score and current

advertising competition.

Top page bid estimates

It is the approximate CPC bid needed for your ad to

regularly appear in the top positions on the Google search
results.

This bid estimate is also based on quality score and

current advertising competition.

The historical performance is the biggest component of

Quality score.

Historical performance is made up of:

#1 Historical CTR of your keywords

#2 Historical CTR of your ads

#3 Historical CTR of your ad extensions

#4 Historical CTR of ad formats

#5 Historical CTR of your display URLs

#6 Overall Historical CTR of all the keywords, ads and

campaigns in your Adwords account (account history)

#7 Historical performance of your Adwords account in a

particular geo-location(s).

#8 Historical performance of your ads on targeted devices

(desktop, tablets, mobiles etc).
Note: CTR stands for ‘Click Through Rate’ and is defined as
the number of clicks your Adwords ad received divided by
number of times your ad was shown. CTR = total ad clicks /
total ad impressions.

The second biggest component of quality score is

‘Relevancy’.

Relevancy means how relevant your keywords (on which

you are bidding) are to the users’ search query, your ad
copy and the corresponding landing page.

It also means how relevant your ad copy is to its

corresponding landing page.

The third biggest component of quality score is ‘Landing

Page Quality’.

The landing page quality is determined by:

1. How relevant your landing page is to its corresponding

ad copy and the keywords you are bidding on
2. Landing page load time
3. And other factors like originality of the contents,
navigability etc.

Google Ad Rank Algorithm

Google ranks Adwords ads on the basis of Ad Rank. It is
calculated as:

Ad Rank = Max. CPC Bid * Quality Score

The ad rank determines your ad position.

The ad rank determines whether or not your ad is eligible to

appear with ad extensions, site links etc.
Here advertiser-1’s ad won’t rank as his keyword’s quality
score is very poor (1).

Advertiser-3 has got highest ad rank (12), so his ad will get

the 1st position on Google search results page for the
targeted keyword.

Advertiser-2 has got second highest ad rank (9), so his ad

will get the 2nd position on search results page for the
targeted keyword and so on.

In order to rank higher than advertiser-3, you need to

achieve an ad rank higher than 12.

You can get a higher ad rank by increasing your Max. CPC

bid and/or by improving your quality score.

In case your Quality Score is already 10, then the only thing
that you can do to improve your ad rank, is to increase your
Max. CPC bid.

Off course I have made all of this ad rank calculations, very

simple for you.

The ad rank algorithm is much more complicated.

Secret to getting highest possible

return on your Adwords Investment
If you are a beginner in Adwords and your aim is to get
highest possible returns on your Adwords investment then
you should use CPA bidding as soon your campaign is
eligible for it.

If you are an experience Adwords/Analytics user, you

should avoid bidding on CPA.

This is because Google Adwords use the last ad click

attribution model.

So in case of Adwords, the last ad click which closed the

sales, gets all the credit for conversion.

Average PPC marketers bid only on last click keywords.

These are the keywords which closed the sales.

They don’t bid on first click and middle click keywords.

First click keywords are the keywords which initiated the

sales and middle click keywords are the keywords which
assisted the sales.

Different keywords (first click keywords, middle click

keywords and last click keywords) work together to create a
sale.

So in order to get optimum results from your PPC

campaigns, you need to bid on all the keywords {first click,
middle click and last click keywords}.

If you understand Attribution modelling you will get my

point.

If you wish to learn more about attribution modeling then

you should read the following articles: Attribution Modeling
in Google Analytics – Beginners Guide and Google
Adwords Attribution & get this book:

Get my best selling books on

Attribution Modelling
Learn to implement attribution modelling in your
organisation
Understand the customer purchase journey across
devices
Determine the most effective marketing channels for
investment

 Click book covers to find out more

Because of Google Adwords Last ad click attribution

model,

The CPA that you see in your Google Adwords report is not
your actual cost per acquisition. It is the cost per last ad
click acquisition.

So if you ignore first and middle click keywords and

optimize PPC campaigns only on the basis of cost per last
ad click acquisition, then you won’t get optimal results and
sometimes even lose money.

This is because if a keyword is not completing a sale, it may

be initiating a sale or assisting a sale (Always Remember
That) and if you stop bidding on it, because its cost per last
ad click acquisition (the so called CPA reported by Google
Adwords) is too high or it is not completing any conversion
then you may even lose money.

Maximum Profitable Cost Per

Acquisition (CPA)
The very first step toward getting the highest possible
return on your investment is determining your Maximum
Profitable CPA (Cost Per Acquisition).

It is the maximum amount you can pay for each conversion

and still maintain your profit margin.

Let us suppose that you manufacture and sell camcorders.

Lets say, you sell camcorders for $900 per item.

Let us suppose that the total cost of manufacturing,

packaging and shipping a camcorder (including sales tax
and other taxes) is $500.

So the amount of money you make (i.e. gross profit) on

each camcorder is: $900-$500 = $400

Let us assume, that this gross profit does not include the
cost of marketing the camcorders via Adwords campaigns.

So, Profit per Conversion (before Adwords Cost) = $400

In order to remain profitable, your cost per acquisition (or

cost per conversion) via Google Adwords campaign
must be below $400, otherwise you won’t make any money
(profit).

The CPA that you will set, will depend upon your profit
margin.

Profit Margin = (Net Profit/sales) * 100

If you operate on high profit margin then your cost per

acquisition needs to be low.

But bear in mind that maintaining high profit margins can

result in decline in overall sales volume.

This is because the aim here is, to get the most profitable
sales and not highest possible volume of sales.

If you operate on low profit margin then you can afford

high cost per acquisition.

This is because the aim here, is to get highest possible

volume of sales and not the most profitable sales.

FMCG companies like ‘Tesco’ operate on very low profit

margin.

Since they make less profit per item, they need to sell very
large volume of items, in order to remain profitable.

Any decline in sales volume, will quickly erase their profit

and can result in net loss.

Once you know your profit margin, you can decide your
‘Max. Profitable CPA’ i.e. the maximum amount you are
willing to pay for each conversion and still maintain your
profit margin.

Let us suppose that your max. profitable CPA turned out to

be $100.
Then $100 is the maximum amount you are willing to pay
for each conversion and still maintain your profit margin.

If you are a beginner in Adwords use ‘Target CPA bidding’.

Start with the recommended bid.

If you are an experienced Adwords user, then use your max.

profitable CPA as the target CPA and don’t use the ‘Target
CPA’ bidding option.

Manage your bids manually, so that you can also optimize

for first click and middle click keywords as explained above
and keep multi channels attributions into account.

Competitive Metrics used in Google

Adwords
Competitive metrics are some of the most useful metrics
available in Google Adwords for understanding the
performance of Adwords campaigns. 

I generally look at these metrics first, to quickly determine

the overall performance of an adwords account.

#1 Search Lost IS (rank)

It is the estimated percentage of ad impressions on Google

Search Network that your ads did not receive because of
poor ad rank.

So if you see a high search lost IS (rank) percentage then it

means the adwords campaigns are managed poorly.

#2 Search Lost IS (budget)

It is the estimated percentage of ad impressions on Google

Search Network that your ads did not receive because of
low budget.

So if you see a high search lost IS (budget) percentage

then it means you need to increase campaign budget.

#3 Display Lost IS (rank)

It is the estimated percentage of ad impressions on Google

Display Network that your ads did not receive because of
poor ad rank.

#4 Display Lost IS (budget)

It is the estimated percentage of ad impressions on Google

Display Network that your ads did not receive because of
low budget.

#5 Search Impr. Share

It is the percentage of eligible impressions your ads

received on the Google search network.

Higher the search impression share, the better, as it means

your ads are receiving maximum number of the
impressions, they are eligible for.

#7 Display Impr. Share

It is the percentage of eligible impressions your ads

received on the Google display network.

Higher the display impression share, the better, as it means

your ads are receiving maximum number of the
impressions, they are eligible for.

#8 Relative CTR

Through this metric you can get an idea of how your ads
are performing on Google Display Network in comparison
to the other ads on the same websites.

A relative CTR of 1x means that the CTR of your Display ad

is equal to the average CTR of others ads running in the
same section on a website.

Performance Metrics used in Google

Adwords
Following metrics are frequently used to measure the
performance/effectiveness of campaigns, ad groups, ads
and keywords:

#1 Clicks – number of clicks on your ad

#2 Impr.(impressions) – number of times your ad is seen

by people.

#3 CTR (click through rate) – it measures how often

people click on your ad, after it is shown to them. CTR
measures the effectiveness of your ads. CTR = ad clicks /
ad impressions.

#4 Avg. CPC – it is the average amount you pay for each

click on an ad.

#5 Avg. CPM – it is the average amount you pay for every

thousand impression of your ad.

#6 Cost – it is the sum of total ad clicks cost and total ad

impressions cost. It does not include other costs like cost
per call.

#7 Avg. Pos.- it is the average position of your ad.

#8 Total Cost – it includes all types of costs (total ad clicks

cost, total ad impressions cost, total phone cost)
#9 Engagements – number of times a person expands
your lightbox ad.

#10 Engagement rate – it measures how often people

expand your lightbox ad, after it is shown to them.
Engagement rate measures the effectiveness of your
lightbox ads. Engagement rate = total engagements / total
ad impressions.

#11 Avg. CPE (cost per engagement) – it is the average

amount you pay for each ad engagement.

#12 Views – it is the number of times your video ads were

viewed. Google Adwords count only those views where a
person has watched at least 30 seconds of video (unless
the video itself is shorter than 30 seconds)

#13 View rate – it measures how often people watch a

video, after the corresponding video ad (including
thumbnail) is shown to them. View rate measures the
effectiveness of your video ads. View rate = total views /
total ad impressions.

#14 Avg. CPV  (Cost per view) – it is the average amount

you pay for each video view.

#15 Avg. Cost  – it is the average amount you pay for each
ad interaction (ad clicks, video views).

#16 Interactions – it is the total number of ad interactions

(ad clicks, video views)

#17 Interaction rate – it measures how often people

interact (click, view) with your ad, after it shown to them. It
measures the effectiveness of your ads.

#18 Video played to: 25%, 50%, 75%, 100% – it measures

the percentage of people who watched video of particular
length (25%, 50%, 75%, 100%). So if video played to 50% is
10%, then it means, 10% of people watched 50% of the
video.

Conversion Metrics used in Google

Adwords
Once you have set up conversion tracking in Google
Adwords, you can then see all of the following conversion
data for your adwords campaigns, ad groups, ads, ad
placement and keywords:

#1 Conversions – it is the number of conversions (sales,

leads, signups, downloads or any action you defined as
conversion) generated by your campaign, ad group, ad or
keyword. It does not include cross device conversions.

#2 Cost/conv – it is the average amount you pay for a

conversion (excluding cross device conversions)

#3 Conv.rate -it is the percentage of ad interactions (clicks,

views) which resulted in a conversion.  It measures, how
often an ad interaction resulted in a conversion.

#4 All Conv. – it includes all of the conversions reported in

the ‘conversions’ column + additional conversions (like
cross device conversions)

#5 View-through conv.- It is the conversion triggered

through an impression (viewing) of a display network ad
that has not been clicked in the last 30 days.

#6 Cost/ all conv – it is the average amount you pay for

any type of conversion.

#7 Cross-device conv. – it is the total number of cross

device conversions. In case of cross device conversions,
an ad interaction (click, view) take place on one device and
the resulting conversion takes place on a different device
or browser.

#8 Converted clicks – it is the number of unique ad clicks

which resulted in one or more conversions.

#9 Cost / converted clicks – it is the average amount you

pay for each converted click.

#10 Click conversion rate – it is the percentage of total ad

clicks which resulted in converted clicks. It measures, how
often a click on your ad resulted in a conversion.

#11 Total conv. value – it is the total value of all of your

conversions.

#12 Value / conv. – it is the average value of a conversion.

Articles Related to Attribution

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2. Which Attribution Model to use in Google Ads (Google
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4. How to change Attribution Model in Google Ads
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13. How to test Attribution Model in Google Ads (Adwords)

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