Paid Search (PPC)

How can you tell which Ad Position is best? We analysed our client AdWords data and make recommendations, and include charts and examples to review.

The main aim of a search campaign (search text ads) is to drive conversions to create profit. Conversions might be defined by the value of sales made, the number of valuable leads generated or another positive metric, such as increased brand recognition.

Profitability has four important factors at play: advertising value, advertising costs, internal costs and overall volume:

Profits Made = No. of Conversions * (Value Per Conversion – Cost Per Conversion – Internal Costs Per Conversion)

How Does Ad Position Affect Profits?

I have often wondered which advert position is best for the highest profitability when all four factors above are considered.

Advert positions are reported in Google AdWords from 1.0 (the top, highest position) down to 7.0 (the current bottom, lowest position). Advert positions are placed in exact number locations (1, 2, 3, 4, 5, 6 or 7), but may be reported as a decimal when averaged out.

How might different ad positions affect each factor? Let’s look at each one individually with search campaign data from our ten biggest clients in the past year (that’s over 57 million impressions!):

Cost Per Click vs. Ad Position

There’s a clear relationship between ad position and costs. Simply put, the more you are willing to bid on a keyword, the higher it will be placed within Google’s ad slots:

In real terms, this relationship is a little more complex (see the video above) but in general, ad position is clearly related to cost-per-click for search ads:

So we can easily conclude that higher ad positions cost more per click.

Advertising Volumes vs. Ad Position

The relationship between ad position and volume of traffic is also how you would expect, users tend to click more on search ads higher up in Google’s results.

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

There’s a huge difference in click-though-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:

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 2.0 perform very poorly in terms of click-through-rate and overall volume of traffic.

Advertising Costs vs. Ad Position

Advertising costs are related to both the cost-per-click and the volume of clicks, which is directly related to the click-through-rate of the ad:

Advertising Costs = Cost Per Click * No. Of Clicks
Advertising Costs ∝ Cost Per Click * Click Through Rate

Since we’ve just established that cost per click rises with a higher placed ad position, and the number of clicks also rises with a higher ad position, this gives this relationship based on the live data set:

The effect of having a higher ad position greatly impacts on the overall costs for a keyword due to the increased click-through-rate combined with the high cost-per-clicks.

Overall costs can more than double from just going from position 2.0 to position 1.0:

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.

Conversion Rate vs. Ad Position

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

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

Some e-commerce industries, such as fashion, may have a lot of window shoppers – 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 may appear on hundreds of other websites, such as a DVD or LP.

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

If you throw other variables into the mix such as the number of ads above the fold for each enquiry, ad extensions, localisation, personalisation and several other factors that control Google Ads, then there’s a very complex picture of ad position vs. conversion rate – even Google’s own experts argue over this.

As part of our data analysis, I did record the conversion rate for different ad positions and have these results below:

Please note that this data is highly irregular and shouldn’t be used as it includes a lot of data from two very different clients of ours. One client wants to dominate their market-place with highly positioned ads and another client is in a highly competitive and popular niche, which means that giants such as Amazon often push the ads under position 2.0 as they can bid far more aggressively.

To get accurate results for conversion rate vs. ad position we would need to have a much, much bigger data set spanning over thousands of PPC accounts in all industries to even start to get a clear picture (if there is any difference in conversion rate at all).

Which Ad Position Makes the Highest Profit?

Going back to the original profit calculation:

Profits Made = No. of Conversions * (Value Per Conversion – Cost Per Conversion – Internal Costs Per Conversion)

We can now make sense of the relationships of each of the four values that determine profit compared to the ad positions:

No. of Conversions ∝ Ad Position (a higher ad position equals a higher click-through-rate and more conversions)
Value Per Conversion = A constant value, relative to revenue
Cost Per Conversion ∝ Ad Position (a higher ad position equals a higher advertising cost per conversion as the cost-per-clicks are higher)
Internal Costs Per Conversion = A constant value

This shows that there is a fine line between getting a high number of sales and getting the cheapest possible clicks to achieve the highest profitability. One factor is helping to increase profitability, whilst at the same time another factor is decreasing profitability, giving this average relationship overall (based on the live data set trendlines):

As you can imagine, placing an ad in the top 1.0 position could easily put you in a position where you are spending more money on advertising than what you get back in revenue, making an overall loss in profitability. The sweet spot of ad position might be at position 2.1, 3.5 or 4.6 for example, where you’ll find the best mixture of high enough click-through-rate and low enough cost-per-clicks.

The profit graph greatly shifts for different niches, websites and keywords, looking at an extremely high-performing example would lead to a relationship such as:

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

It’s very easy with a low converting website to waste more advertising spend than immediately getting back in return, an overall loss from any position higher than 3.0 in this example above. A well-built website combined with Conversion Rate Optimation (CRO) can make a huge difference in the overall profitability of paid ads.

It’s certainly possible to never achieve profit with any ad position if the revenue or conversion rate is too poor. Negative keyword lists need to be used to ensure that certain keywords like this don’t trigger ads as they will continue to lose money overall.

Conclusion

If you are fixated on a certain ad position for a search campaign keyword, then you are most certainly not getting the highest profitability for that keyword due to so many variables.

The metrics for each keyword 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 that each and every keyword within an account makes a profit so Maximum Cost-per-Click bids need to be at least lowered until the keyword is profitable, and then tested to see if profits can be improved upon.

4 responses to “Google AdWords: Which Ad Position Is Best for Search Campaigns?”

  1. Eric Martin says:

    Please redo this study now that there are no right-column ads. Thanks so much for the study!

  2. Jonathan Ellins Jonathan Ellins says:

    Hi Eric,
    The study has been re-done now Google has removed the right hand side ads on Desktop and Tablet.
    All the best,
    Jonathan Ellins

  3. Chris says:

    Here is my situation. I am in a highly competitive space in the US Market. I get a 65% of my conversions from mobile so I have mobile and desktop for the same keyword in separate ad groups. I have one ad that converts great across any adgroup. It is pretty much the same ad. It converts around 20%. When I try and tailor the ad to be more specific for each ad group / keyword my CTR doubles or sometimes triples, my cost per click goes down a lot but I get barely any conversions and I have to pause because I have a very specific CPA I must hit. I may allow the new adcopy to get 20 or 25 clicks before I panic and pause it…….

    So If I have same keyword but new ad with much higher CTR and lower cost per click plus same landing page then shouldn’t I see better results and not worse?

  4. Jonathan Ellins Jonathan Ellins says:

    Hi Chris,
    I would just use one campaign for both mobile and desktop and change the device bid adjustment according to the cost-per-conversion. Pausing something before 25 clicks is a bit quick, conversions can take a day or two to show up, especially if it’s a costly product or service. You can look at the average session duration as a quicker metric to gauge how well the ad is performing and stick to your guns for a week or so of clicks. Although CTR is important for quality score and the amount of traffic you can get, the most important metric is the cost-per-conversion for you if it’s highly competitive so just use what works and run an experimental ad now and then.

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