How does the auction work on Google? How do you know if you’re overpaying for an ad on AdWords since you can’t see competitors bids?
This is a very typical question and frustration with AdWords: “You can’t see what others are bidding per keyword/phrase so you just have to trust them…that seems rather odd and not like how other auctions are run.”
Here’s advice from AdWords users and experts about the auction and bidding…
Google uses a combination of the max CPC (cost per click) you set in the system, an ad quality score to determine where your ad will rank on the page. That quality score includes how much your ad gets clicked on and other variables so positioning of ads is not based solely on how much you are willing to pay for each click. That’s why it’s impossible to determine exactly how much you’re competitors are bidding which is frustrating and a bit black box. People are paying lower CPC rates and appearing higher on the page. They may be offering something for free or a game or app or something to sweeten the click through rate.”
Google AdWords is very effective but you have to know exactly what you’re doing and what you’re trying to achieve. If it didn’t work, Google wouldn’t be the monster that it is today. You have to do some research, decide what you’re trying to achieve, do a lot of keyword research and the metrics that surround them and most importantly, you need to track each keyword so you know exactly which keyword converted to a sale. If you don’t then you are throwing money down the drain. I can start off some campaigns with up to 2000 keywords, so some method of tracking has to be in place. There are free programs about that will allow you to do that. One way you could start off is to throw a a large number of keywords into tightly grouped themes as separate ad groups, bid reasonably low, maybe he 11 or $.12 and leave it to on for a few days and then go and select all of keywords that have the highest impressions and or anything with a CTR of over 5% and then take those keywords and try launching a campaign. Basically if you don’t a high CTR rate and can get your ad into the top one to four positions then you’re going to struggle.”
It always takes a while to optimize campaigns so that you are not wasting your money, but it’s great because you can measure your return/conversions if you are an e-commerce site.”
The big companies are able to spend a lot of money on search advertising and they’re driving up the costs for small businesses who can’t afford the newer high prices for search ads on Google.”
Start with buying ads for .05 cents and then learn what works and go up from there. It takes time to do this and many clients don’t want to go through the waiting and learning stage to figure out how low they can go.”
Most small businesses buy the most expensive and obvious keywords and they’re totally overpaying because they don’t know how to buy thousands of keywords and then optimize a campaign. They don’t want to spend the money to hire a PPC agency so they try to do it themselves and get the results you’d expect.”
Google’s Chief Economist Hal Varian explains how the auction system works in this video.