When you have a finite Google AdWords budget, and your budget is being hit, all other things equal it makes sense to lower your bids until your budget is no longer being hit. That way, so the theory goes, you will get more clicks for the same budget. And since research by Google suggests that there is little difference in conversion rate by position, you could reasonably assume that a higher number of clicks is generally associated with a higher number of sales.
However, ever since Google rolled out sitelink ad extensions, ads appearing in the top positions on Google are no longer similar to ads appearing on the right hand side of Google. Ads with sitelinks now have 3-4 extra links, and up to 100 extra characters text, compared to non-sitelink ads. Although sitelinks are generally well accepted to increase CTR, if your sitelinks go one step further and create additional value (i.e. by pointing out the key benefits or selling points of your business), then sitelinks could also increase your conversion rate.
And if this is true – that the use of sitelinks does increase your conversion rate – then since sitelinks can only be shown when your ad appears in the top positions of Google, we can reasonably assume that appearing in higher positions on Google could increase your conversion rate from Google AdWords.
Increase Your Conversion Rate with Sitelinks
For example, suppose you are a pizza delivery company. Instead of your ad being restricted to 95 characters (25 character headline, 35 character first description, and 35 character second description), with 4 x 25 character sitelinks you can now utilise a total of 195 characters via sitelink ad extensions. And if you use these 100 extra characters to point out the 4 key benefits of your pizza delivery company, for example…
20% Off Premium Pizzas Fast 30 Minute Delivery
100% Organic Ingredients Free Delivery On Sundays
…then doing do could considerably increase your conversion rate.
A higher conversion rate from the top positions not only challenges Google’s 2009 study of conversion rates by position mentioned earlier (that there is little difference in conversion rate by position), but it also challenges the well-regarded strategy of click maximisation. If ads placed in higher positions on Google have higher conversion rates and are more likely to generate conversions, then it is no longer a case of simply trying to maximise clicks for a particular keyword to make most effective use of your finite advertising budget.
If you only had a budget of $100/day for the keyword ‘pizza delivery melbourne’, for example, an average CPC of $1.00 might show your ad in 1st position and generate 100 clicks before your campaign is paused for reaching your daily budget of $100. But if you had lower bids and your ads were instead shown in 4th position, you might receive 200 clicks for an average CPC of $0.50.
That’s twice as many clicks, for the same keyword and the same click spend.
And assuming Google’s 2009 finding that conversion rates don’t generally differ by ad position is correct, then twice as many clicks coming from your keyword ‘pizza delivery melbourne’ would likely result in twice as many conversions.
That’s twice as many conversions, for the same keyword and the same click spend.
This is the logic that many Google AdWords managers have used to help optimise their campaigns and maximise the return on investment, and is illustrated in detail in this article on bidding and budget management.
Since sitelink ad extensions were rolled out, not all clicks from a particular keyword are of equal value. Since your ad appearing in the top position for a particular keyword may have a higher conversion rate than your ad appearing in a lower position for the same keyword, it is no longer as simple as trying to maximise click volume. You now also have to also take into account any increase in conversion rates from ads in a higher position due to the effect of sitelink ad extensions.
Two Optimisation Equilibriums
Instead of one equilibrium (i.e. the maximum number of clicks your budget can receive for a particular keywords), there may now be two different equilibriums (i.e. one equilibrium for maximum clicks, and another equilibrium for maximum conversions). Exactly what CPC bids will be most effective now depends on whether the increase in conversion rate from showing sitelink extensions outweighs the increase in CPC bid needed for sitelink ad extensions to appear.
Let’s see why.
Suppose you have a budget of $5,000, and wanted to spend it all on one keyword. The higher your bid, the more clicks you receive, but only up until you reach your budget. When you reach your budget of $5,000, any higher CPC bids will simply result in fewer clicks. There is therefore a point of click maximisation – a point where you receive the maximum number of clicks for your budget of $5,000. In this example, let’s suppose the point of click maximisation is at a CPC bid of $1.00, which results in 5,000 clicks.
Now let’s also suppose that the conversion rate is the same regardless of the CPC bid and click volume (a very reasonable assumption according to Google’s research we talked about earlier). Let’s The point of maximum conversions will also be at the point of maximum clicks. This makes sense – the more clicks, the more conversions. In our example, let’s assume you manage to achieve a conversion rate of 10%. A CPC bid of $1.00 will result in 5,000 clicks and 500 conversions.
The point of maximum clicks for a keyword equaling the point of maximum conversions for a keyword was how Google AdWords managers optimised their campaigns for years…
…Until Sitelink Extensions Came Along
With sitelink ad extensions, conversion rates are no longer static. If showing sitelink ad extensions allow you to increase your conversion rate, this increase in conversion rate also needs to be taken into consideration when optimising your bids. Having two variables to work with (click volume and conversion rate) instead of just the one (click volume) adds an extra degree of complexity to Google AdWords bid optimisation.
To see how, let’s consider 4 different scenarios – all of which are very possible.
> SCENARIO 1: Huge Increase in Conversion Rate
Let’s suppose your sitelink ad extensions create so much additional value and entice the searcher into converting so much more than your ads without sitelink ad extensions, that you notice a huge increase in conversion rate. Let’s also suppose you need a CPC bid of $1.60 in order to make your ads appear high enough for your sitelinks to appear. Since your conversion rate for your sitelink ads is so much higher than your conversion rate for your non-sitelink ads, your number of conversions notices a huge spike as soon as your CPC bid reaches $1.60 and your sitelinks start appearing:
Even though you are now only getting 3,125 clicks for your $5,000 budget (compared to 5,000 clicks before), you are now getting 600 conversions.
Even with a higher CPC bid, and fewer clicks, your total number of conversions has increased from 500 to 600! Because of your fantastic sitelink ad extensions, the increase in conversion rate is greater than the increase in CPC, hence the higher number of conversions.
WHAT THIS MEANS FOR YOU:
If your sitelink ad extensions increase your conversion rate more so than the increase in average CPC needed for sitelink ad extensions to appear, then increasing your bids to show sitelink ad extensions will likely result in more conversions for your clicks budget.
> SCENARIO 2: Slight Increase in Conversion Rate
Another possible scenario is that sitelink ad extensions increase your conversion rate slightly, but by not enough to make worthwhile paying the higher CPC prices and receiving a lower click volume. In this scenario, a CPC bid of $1.60 (which enables your sitelink extensions to appear) results in only 450 conversions.
Because your sitelink extensions did not increase your conversion rate enough to outweigh the more expensive CPC prices, your point of maximum conversions will be your point of maximum clicks.
WHAT THIS MEANS FOR YOU:
If your sitelink ad extensions increase your conversion rate by a lower percentage than the percentage increase in average CPC needed for your sitelink ad extensions to appear, then increasing your bids to show sitelink ad extensions will likely result in fewer conversions for your clicks budget. In this case, you will receive the highest number of conversions by optimising to maximise click volume.
> SCENARIO 3: Reduction in Conversion Rate
Another (albeit less favourable) scenario is that your sitelink ad extensions reduce your conversion rate. Searchers are so disgraced with your pathetic sitelinks that they are less likely to convert. Searchers are confused with your contradictory messages, put off by your misleading claims, or repulsed by your poor spelling and grammar, that you would have been better off not showing your sitelink ad extensions at all. Here, a CPC bid of $1.60 would result in only 200 conversions.
Since you’re now paying more for each click ($1.60 compared to $1.00), and your conversion rate is also lower, your point of maximum conversions will be your point of maximum clicks.
WHAT THIS MEANS FOR YOU:
If your sitelink ad extensions are detrimental to your conversion rate, then either improve your sitelinks, or ignore sitelinks altogether and opt for a sitelink-free ad strategy.
> SCENARIO 4: Increase in Conversion Rate = Increase in CPC
Now suppose that the increase in conversion rate from your sitelinks is exactly the same as the increase in CPC bid needed for those sitelinks to appear. In this scenario, you will have two different points of maximum conversions, with CPC bids of $1.00 and $1.60 both achieving 500 conversions.
With a budget of $5,000, a CPC bid of $1.00, and a conversion rate of 10%, your receive 5,000 clicks and 500 conversions
With a budget of $5,000, a CPC bid of $1.60, and a conversion rate of 16%, your receive 3,125 clicks and 500 conversions
That’s two different CPC bids, and two different click volumes, but exactly the same number of conversions.
WHAT THIS MEANS FOR YOU:
If your sitelink ad extensions increase your conversion rate by exactly the same percentage as the increase in average CPC needed for sitelink ad extensions to appear, or the two percentages are too close for comfort, then you are in a volatile state of uncertainty between two very different optimisation strategies. Either try to improve the conversion rate from sitelink ads so that they more than make up for any increase in CPC, or collect further data over a longer data range (and fro more keywords) to more reliably understand how your sitelinks are performing and determine whether you are better off with a click maximisation or a reduced click but sitelink-enabled strategy.
If sitelink ad extensions influence conversion rates from Google ads (for better or worse), then keyword bid optimisation is no longer simply a case of trying to gain as many clicks as possible for a particular keyword for your budget. If sitelink ad extensions have such as positive effect on conversion rates, even though your daily Google AdWords budget is being hit, it could be worth increasing your bids further so that your ads appear with sitelinks in the top positions on Google. That’s right – even though you are already hitting your daily budget, it could be worthwhile further increasing your bids.
Regardless of which of the above 4 scenarios most closely matches your campaigns, one thing is clear: bid optimisation is no longer about maximising the number of clicks your budget can receive for a particular keyword – conversion rates by position now also need to be taken into account. Google AdWords bid management has now become considerably more complex.