How can you tell which Ad Position is best? We have formulated the relationship between the Google Ads ad position metric and business profitability by analysing search campaign data from our expansive client base.

google ads profitability

The profitability of a Google Ads campaign has four important factors at play:

  • value of conversion
  • advertising volume
  • advertising cost
  • internal cost.

Where conversions are generally defined as valuable actions taken on your website, such as appointment bookings or transactions.

Profit = No. of Conversions * (Value Per Conversion – Advertising Cost Per Conversion – Internal Cost Per Conversion)

How do Google Ads positions affect profits?

To determine which Google AdWords position is best for profitability, we need to consider the relationships between all four factors mentioned above.

Ad position is reported in Google Ads from 1.0 (being the top of the paid listings section within the search engine results page) down to 7.0 and is reported as a decimal when averaged out. In the simplest example, if an ad shows up in position 1.0 once and then in position 2.0 once, it’ll be reported as “Avg. pos = 1.5”.

Let’s go ahead and break down the relationship between ad position and costs, with search campaign data from a huge variety of Hallam managed accounts (we’re talking roughly 50 million impressions).

Ad Position vs Cost Per Click

There’s a clear relationship between ad position and the average cost per click. Generally speaking, the higher you want to advertise on Google’s search engine results page, the more it will cost you. However, this relationship is slightly more complex. It isn’t just dependant on your willingness to spend more per click, but rather how relevant and useful the ad is to any given user too.

Since we’re analysing data from varying business sectors and account strategies, we’ve determined the average percentage shift between ad positions. So in the following examples, we will assume an arbitrary cost per click of £0.75 and apply our findings to visualise what the CPCs would be for different ad positions.

Google Ads position vs average CPC

Ad Position vs Advertising Volume

The relationship between Google AdWords position and volume of traffic is also what you’d expect: users tend to click more on search ads higher up in Google’s results page.

The click-through-rate (percentage of people who click the ad when it is shown) drops as the ad position goes lower.

 

Google Ads position vs CTR

There’s a huge difference in click-through-rate between positions 1.0 – 1.4 compared to positions 1.8 – 2.2, with the top positions getting around 50% extra traffic than just one position lower:

Google Ads position vs clicks

The difference from around position 4.0 to position 1.0 is over double the amount of traffic. Google may put 1, 2 or 3 ads beneath the organic results, so it’s unsurprising that ad positions higher than 3.0 perform very poorly in terms of click-through-rate and overall volume of traffic.

Ad Position vs Advertising Cost

The overall advertising cost is related to the cost-per-click and the volume of clicks, which both rise considerably when shifting from ad position 2.0 to position 1.0.

Google Ads position vs cost

The effect of having a higher Google Adwords position will greatly impact the overall costs due to the increased click-through-rate combined with higher cost-per-clicks.

Considering the % shifts from the above, the overall advertising cost would approximately double, if we were to rise from position 2.0 to position 1.0:

Google Ads position vs costs

Internal Costs vs. Ad Position

Internal costs such as product costs, fuel costs, delivery costs, taxes, wages, premises costs, vehicle costs, etc, are at the same relative value per conversion independent of the ad position. In other words, when calculating profitability you can set fixed prices (or fixed price percentages based on the revenue amount) for internal costs on each conversion generated.

Why #1 doesn’t always mean higher Google Ads conversion rates

Arguably the most important element of the profit equation listed at the top of this article is the number of conversions we achieve.

Does conversion rate differ with ad position? A question that many paid advertising professionals wonder, and the answer, unfortunately, isn’t clear-cut.

Different industries, different tactics

For starters, conversion rates differ greatly from industry-to-industry.

Industry benchmark average conversion rate

Wordstream – Google Ads Benchmarks for YOUR Industry [Updated!]

E-commerce industries, such as fashion, may have a lot of window shoppers and therefore low conversion rates – people who will look at hundreds of items before buying. Other e-commerce industries, such as entertainment, may have people who are looking for the cheapest price for a product, the exact same product which would appear on hundreds of other websites.

Then you have service industries that may have a very high conversion rate, such as emergency plumbers or locksmiths. This is where people need local assistance right away and are less fussy with little time to make a decision.

Comparing the nature of the above examples, you’d say that being in the #1 position would be far more profitable for the emergency locksmith business. Not so much for the fashion retailer, since a user would likely browse through ads in positions 1, 2 and 3 rather equally.

Position #1 will encourage more irrelevant traffic

Naturally, being in position 1 will incur many costs from users who will click your ad simply because it’s in the top position. Rather than consuming the contents of your advert and making an informed decision as to whether or not the advert is actually relevant to them.

An increase in irrelevant traffic basically translates to a lower conversion rate since that very traffic would likely bounce off your website.

Ad Position vs Conversion Rates

Take the two points above and throw other variables into the mix, such as the number of ads above the fold for a given query, ad extensions, localisation, personalisation (plus many more variables), which influence the success of your Google Ads – you paint a very complicated picture regarding ad position vs. conversion rate – even Google’s own experts argue over this.

To get a reasonably accurate (general) representation of Google AdWords position vs Google ads conversion rate, you would need to work with an enormous data set, spanning over thousands of PPC accounts in all industries.

Which Google Ads position makes the highest profit?

So, going back to the original profit calculation:

Profit = No. of Conversions * (Value Per Conversion – Advertising Cost Per Conversion – Internal Cost Per Conversion)

Consider the relationships of each of the four values that determine profit to the ad positions:

No. of Conversions ∝ Ad Position (a higher position means more traffic and therefore more conversion volume)

Value Per Conversion = Revenues generated

Advertising Cost Per Conversion ∝ Ad Position (a higher ad position incurs higher advertising costs per conversion)

Internal Costs Per Conversion = A constant value

There is a fine line between driving a high number of sales and getting the cheapest possible clicks to achieve high profitability. One side of this proportionality helps to increase profitability, whilst the other side decreases it.

In layman’s term, as we increase our bids, we improve our ad position and therefore increase our volume of conversions but at the expense of profitability/return (in most cases).

We can plot this relationship and determine which Google AdWords position would generate the highest level of profitability per conversion (average).

Google Ads position vs profit

As you can see, placing an ad in a top position would cause you to spend more money on advertising than what you would get back in revenue, making an overall loss in profitability. The ad position ‘sweet spot’ would be in the region of 2.2 – 5.0, an area where click volumes and cost-per-clicks are set so you’d make a genuine return.

The profit graph greatly shifts for different niches, websites and keywords, looking at an extremely high-performing example would lead to the relationship expressed below.

Google Ads position vs profit

The website’s conversion rate is highly important in determining what the best possible ad position would be. With a low conversion rate, the same results above are greatly shifted to a very low-profit situation, creating a relationship like this:

Google Ads position vs profit

Low converting websites are much more prone to wasting advertising spend. A well-built website combined with Conversion Rate Optimisation (CRO) can make a huge difference in the overall profitability of paid advertisements and in fact all other forms of website marketing.

It’s also possible to never achieve profit in any ad position if the conversion rate is too poor – an effective website is at the forefront of all digital marketing activity.

Impression share over Google Ads position

Google announced that they would be sun-setting the average position metric in Feb 2019 (actual date for metric removal not yet known). Average position will be replaced with a more accurate and analytical method for gauging ad prominence, known as “impression share”. I’m sure you will have already seen columns such as “Top impression share” and “Absolute top impression share” floating around in your account – these are powerful metrics for analysing the performance of your advertising and visibility relative to your competition.

Even with the move away from average position to impression share, the data above is still relevant to advertisers. Future articles will compare performance metrics such as Conversion Rate, CPC and CTR against impression share rather than ad position.

Conclusion

If you are fixated on achieving a certain ad position for your keywords, then you are most likely disregarding the profitability of your advertising. I would urge you to consider the performance of your keywords based on data. This will help you to determine how you should manage your Google Ads activity.

The metrics for each keyword or theme of keywords need to be closely analysed in terms of conversion rate, value per conversion and internal costs which determine how much profit is made overall. It’s imperative to secure the most profitable ad position for most, if not all, keywords.


If you need help with your Paid Media don't hesitate to contact us.

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