When we were busy developing the charting components for our new
AdWords API management program, I was playing with some chart
overlays of the various AdWords Metrics: Cost per Click, Position
and Click Through Rate. These three metrics form the basis of the
so-called AdWords formula of
Relative Position = Cost Per Click * Click through rate.
I experimented with trying to understand the effect that changing
an ad would have in the overlays, and while changing the ad would
alter each of the variables, looking at them combined actually did
not tell me whether the net result of the change was positive or
negative.
The reason for this is that one element of the formula may be
adversely affected, while an other could be positively affected.
For example, the position and CTR may improve, but the price may
increase. So you have two curves going one way and one curve the other.
These contradictory messages when plotted on a chart over one
another lead to a certain amount of confusion as to whether the
net effect was desirable or not.
What I was looking for was an easy way to assess whether a change
in an ad could result in just one curve that would tell me whether
the overall net result was positive or negative.
So I set about combining these three elements into a formula that
would give a graphical representation in one curve that would tell
me whether changing my ad was overall positive or negative.
Using the logic that:
A higher Ave Pos is positive.
A higher Click-through rate is positive.
A lower Cost per Click is Positive
I combined these elements into: Ave Pos * CPC * (1/CTR)
This value represents now, just one curve, which when plotted
over ad changes in time, will give you an overall impression as
to the effect of changing an ad. This curve I have called the
AdWords Efficiency Indicator (AEI)
Now, the point of this is not the absolute value – but the
trend up or down.
The more efficient the ad, the more it will trend down towards
zero on an overlay chart, the less efficient and it will increase
in value.
But it gives you an immediate visual fix on whether something needs
closer attention and when plotted over Ad change history reveals
instantly whether you should consider having another look at your
Ad performance.
About the author:
Chris Lee is Joint Owner of AdWords-Dominator (
www.adwords-dominator.com) , the world’s first AdWords API Desktop Manager for managing AdWords accounts.
(c) Chris Lee 2005 – You may distribute this article only with this acknowledgement attached.
