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Last Updated: July 3, 2022

If you do multi-channel marketing for your company, then you simply can’t afford to ignore Google Ads.

In order to get optimum results from your Google Ads campaigns, you need:

1. Good practical knowledge of how Google Ads really works
2. To know how different Google Ads metrics are calculated and
3. To know how different campaigns, ad groups, keywords, and landing pages are analyzed and optimized for traffic and conversions.

If Google Ads is a total mystery to you then this article is going to help you a lot.

If you are already familiar with Ads reports then also you will learn tricks, which not even many, very experienced Google Ads optimizers know about.

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Introduction to a Google Ads Auction

Whenever a user performs a search on Google (or its search partners), Google runs an auction for clicks known as the Google Ads auction.

To participate in an auction you have to bid. Similarly to participate in a Google Ads auction, you have to bid on keywords.

Each Google Ads auction decides ad(s) that will be shown to a user at a particular moment in time and ad space.

Types of Bids in a Google Ads Auction

There are four types of bids that can be placed in a Google Ads auction:

1. CPC (Cost Per Click)
2. vCPM (Cost Per Thousand Viewable Impressions)
3. CPA (Cost per acquisition)
4. CPV (Cost per view)

Cost Per Click (CPC) Bidding

In the case of CPC bidding, you pay for each click on your ad.

CPC bidding is suitable if you are mostly interested in getting traffic to your website from Google Ads.

You can run CPC bidding for search and display ads.

You can adjust your CPC bids manually (via manual bidding) or you can let Google Ads adjust the CPC bids for you (via maximize clicks or automatic bidding) to get the maximum possible clicks within your budget.

In the case of automatic bidding, the bids are automatically adjusted based on the user’s device, browser, operating system, language, location, time of day or whether or not the user is on, one of your remarketing lists.

The advantage of manual bidding over automatic bidding is that you get more control over bid adjustment.

In the case of manual bidding, you can adjust CPC bids at the ad group level or for individual keywords or ad placements.

Cost Per Thousand Viewable Impressions (vCPM) Bidding

An impression occurs when Google Ads auction decides to show your ad to a user at a particular moment in time and ad space.

Viewable impressions occur when your ad is actually viewed by a user.

In the case of vCPM bidding, you pay every thousand times your ad appears and is viewable.

vCPM bidding is suitable if your main focus is on branding and getting site visibility.

You can run vCPM bidding for display ads.

You can adjust vCPM bids at the ad group level or for individual ad placements.

Cost Per Acquisition (CPA) Bidding

In Google Ads, conversion and acquisition are the same things. So the cost per conversion is the same as cost per acquisition.

Cost per acquisition is the maximum amount you are willing to pay for each conversion.

In the case of CPA bidding, you still pay for each click on your ad but you don’t manage your bids manually to get conversions. The bids are automatically managed by Google Ads to get the maximum possible conversions at the CPA you set.

This type of bidding is suitable if you are mainly interested in getting conversions.

Use CPA bidding for search, display and shopping ads.

Note: In order to use CPA bidding, you must have conversion tracking enabled in Google Ads and your ad group or campaign must have received at least 15 conversions in the last 30 days at a similar rate for at least a few days.

Cost Per View (CPV) Bidding

This type of bidding is suitable if you are mainly interested in getting engagement for your video content. Use CPV bidding for video ads.

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Bid Strategy and Types

A  bid strategy (bidding strategy) defines how you plan to manage your bids and how you plan to pay for users’ interactions with your ads.

There are two broad categories of bid strategies:

In the case of CPV bidding, you pay for each video interaction. This video interaction is generally video views but it can also be clicks on call to action overlay or other interactions recognized by Google Ads.

#1 Manual bid strategies – where you adjust your bids manually.

#2 Automated bid strategies – where Google Ads adjust bids, on your behalf.

A bidding strategy that is applied to a single campaign is called a ‘standard bid’ strategy. 

A bidding strategy that can be applied across multiple campaigns, ad groups and keywords is called a ‘Portfolio bid’ strategy (formerly known as flexible bid strategy).

A standard bid strategy can be manual or automated. A ‘Portfolio bid’ strategy is always automated.

Automated Bid Strategies

Automated big strategies are used by Google Ads to adjust bids, on your behalf.

Google Ads provides six different types of automated bid strategies:

#1 Maximize Clicks bidding (formerly known as automatic CPC bidding) – use this bid strategy, to let Google Ads get maximum possible clicks for you, within your budget.

#2 Target Search Page Location bidding – use this bid strategy, to let Google Ads increase the chances of your ads appearing on the first page of search results or at the top of the first page of search results.

#3 Target Outranking Share bidding – use this bid strategy, to let Google Ads automatically adjust your bids, to outrank your competitor’s website in search results.

#4 Target CPA bidding (or CPA bidding, formerly known as Conversion optimizer) – use this bid strategy, to let Google Ads automatically adjust your bids, to get the maximum possible conversions at the CPA you set.

#5 Enhanced CPC bidding – use this bid strategy, to let Google Ads automatically adjust your manual bids, to get the maximum possible conversions, while still keeping control of your keyword bids.

#6 Target ROAS bidding – ROAS stands for ‘Return on Ad spend’. Use the target ROAS bid strategy, to let Google Ads automatically adjust your bids, to get the maximum possible conversion value at the ROAS you set.

Difference between Max. CPC, Actual CPC & Avg. CPC

Max CPC is the maximum amount you are willing to pay for each click on an ad.

Actual CPC is the actual amount you pay for each click on an ad.

Avg. CPC is the average amount you pay for each click on an ad.

The actual CPC is usually less than the Max. CPC because you need to pay only that much to Google which is good enough to rank your Google Ads ad higher than the advertiser immediately below you.

Actual CPC = Ad Rank of the competitor below / Quality Score of the advertiser

To get a sense of your actual CPC look at the Avg. CPC column in your Google Ads reports.

Ad Position

Ad position is the position of your ad on the Google Search result page. Your ad can appear on the top of the search result page, on the side of the page or at the bottom of the page.

Ad position of 1 means, your ad is the first ad on a search result page. Similarly, an ad position of 8 means, your ad is the 8th ad on a search result page

Higher is your ad position, higher is the probability that searchers will see your ad and click on it. So you should aim for a high ad position.

The ad position is calculated by the Google Ads system via ‘Ad Rank‘.

Quality Score

Quality Score is a factor used by the Google Ads system to determine how relevant your keyword (on which you are bidding) is to the user’s search query, your ad copy and the corresponding landing page.

Most of the time when we talk about the quality score, we refer to the quality score of a keyword. However, we can also have a quality score of a display ad or mobile ad.

So there are three types of quality scores in total:

1. Quality Score of a keyword – it is used when the ads appear on Google Search Network.
2. Quality Score of display ad – it used when the ads appear on Google Display Network
3. Quality Score of mobile ad – it is used when the ads appear on Mobile devices.

Quality score is measured as a number from 1 to 10, where 1 is the lowest quality score and 10 is the highest.

Note: Quality score of a keyword is re-calculated each time it triggers an ad. If the quality score of your keyword is very poor (like 1 or 2), your ad may not be eligible for ad auction.

Higher your keyword’s quality score, higher will be your ad position and ad rank and lower will be your first page bid estimates, top Page bid estimates and your actual CPC (i.e. less amount you will have to pay for each click on your ad).

First page bid estimates 

It is the approximate CPC bid needed, for your ad to appear on the first page of the Google Search results.

This bid estimate is based on quality score and current advertising competition.

Top page bid estimates 

It is the approximate CPC bid needed for your ad to regularly appear in the top positions on the Google search results.

This bid estimate is also based on quality score and current advertising competition.

The historical performance is the biggest component of the quality score.

Historical performance is made up of:

#1 Historical CTR of your keywords

#2 Historical CTR of your ads

#3 Historical CTR of your ad extensions

#4 Historical CTR of ad formats

#5 Historical CTR of your display URLs

#6 Overall Historical CTR of all the keywords, ads and campaigns in your Google Ads account (account history)

#7 Historical performance of your Google Ads account in a particular geo-location(s).

#8 Historical performance of your ads on targeted devices (desktop, tablets, mobiles etc).

Note: CTR stands for ‘Click Through Rate’ and is defined as the number of clicks your Google Ads ad received divided by the number of times your ad was shown. CTR = total ad clicks / total ad impressions.

The second biggest component of the quality score is ‘Relevancy’.

Relevancy means how relevant your keywords (on which you are bidding) are to the users’ search query, your ad copy and the corresponding landing page. It also means how relevant your ad copy is to its corresponding landing page.

The third biggest component of the quality score is ‘Landing Page Quality’.

The landing page quality is determined by:

1. How relevant your landing page is to its corresponding ad copy and the keywords you are bidding on
2. Landing page load time
3. Other factors like the originality of content, navigability etc.

Google Ads algorithm (Ad Rank)

Google ranks Google Ads on the basis of Ad Rank. It is calculated as:

Ad Rank = Max. CPC Bid * Quality Score

The ad rank determines your ad position.

The ad rank determines whether or not your ad is eligible to appear with ad extensions, site links etc.

Here advertiser-1’s ad won’t rank as his keyword’s quality score is very poor (1).

Advertiser-3 has got the highest ad rank (12), so his ad will get the 1st position on the Google search results page for the targeted keyword.

Advertiser-2 has got the second highest ad rank (9), so his ad will get the 2^nd position on the search results page for the targeted keyword and so on.

In order to rank higher than advertiser-3, you need to achieve an ad rank higher than 12.

You can get a higher ad rank by increasing your Max. CPC bid and/or by improving your quality score. In case your Quality Score is already 10, then the only thing that you can do to improve your ad rank, is to increase your Max. CPC bid.

Of course, I have made all of these ad rank calculations, very simple for you. The ad rank algorithm is much more complicated.

The secret to getting the highest possible return on your Google Ads Investment

If you are a beginner in Google Ads and your aim is to get the highest possible returns on your Google Ads investment then you should use CPA bidding as soon your campaign is eligible for it.

If you are an experienced Google Ads/Analytics user, you should avoid bidding on CPA.

This is because Google Ads use the last ad click attribution model.

So in the case of Google Ads, the last ad click which closed the sales gets all the credit for the conversion.

Average PPC marketers bid only on last click keywords.

These are the keywords that closed sales.

They don’t bid on the first click and middle click keywords.

First click keywords are the keywords that initiated the sales and middle click keywords are the keywords which assisted the sales.

Different keywords (first click keywords, middle click keywords and last click keywords) work together to create a sale.

So in order to get optimum results from your PPC campaigns, you need to bid on all the keywords {first click, middle click and last click keywords}.

If you understand Attribution modelling you will get my point.

If you wish to learn more about attribution modeling then you should read the following articles: Attribution Modeling in Google Analytics – Beginners Guide and Google Ads Attribution & get this book:

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• Understand the customer purchase journey across devices
• Determine the most effective marketing channels for investment

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Because of the Google Ads Last ad click attribution model:

The CPA that you see in your Google Ads report is not your actual cost per acquisition. It is the cost per last ad click acquisition.

So if you ignore first and middle click keywords and optimize PPC campaigns only on the basis of cost per last ad click acquisition, then you won’t get optimal results and sometimes even lose money.

This is because if a keyword is not completing a sale, it may be initiating a sale or assisting a sale (Always Remember That) and if you stop bidding on it because its cost per last ad click acquisition (the so-called CPA reported by Google Ads) is too high or it is not completing any conversion then you may even lose money.

Maximum Profitable Cost Per Acquisition (CPA)

The very first step toward getting the highest possible return on your investment is determining your Maximum Profitable CPA (Cost Per Acquisition).

It is the maximum amount you can pay for each conversion and still maintain your profit margin.

Let us suppose that you manufacture and sell camcorders.

Let’s say you sell camcorders for $900 per item.

Let us suppose that the total cost of manufacturing, packaging and shipping a camcorder (including sales tax and other taxes) is $500.

So the amount of money you make (i.e. gross profit) on each camcorder is: $900-$500 = $400

Let us assume, that this gross profit does not include the cost of marketing the camcorders via Google Ads campaigns.

So, Profit per Conversion (before Google Ads Cost) = $400

In order to remain profitable, your cost per acquisition (or cost per conversion) via Google Ads campaign must be below $400, otherwise, you won’t make any money (profit).

The CPA that you will set, will depend upon your profit margin.

Profit Margin = (Net Profit/sales) * 100

If you operate on a high profit margin then your cost per acquisition needs to be low.

But bear in mind that maintaining high profit margins can result in a decline in overall sales volume.

This is because the aim here is, to get the most profitable sales and not the highest possible volume of sales.

If you operate on low profit margin then you can afford a high cost per acquisition.

This is because the aim here is to get the highest possible volume of sales and not the most profitable sales.

FMCG companies like ‘Tesco’ operate on a very low profit margin.

Since they make less profit per item, they need to sell a very large volume of items, in order to remain profitable.

Any decline in sales volume will quickly erase their profit and can result in a net loss.

Once you know your profit margin, you can decide your ‘Max. Profitable CPA’ i.e. the maximum amount you are willing to pay for each conversion and still maintain your profit margin.

Let us suppose that your max. profitable CPA turned out to be $100.

Then $100 is the maximum amount you are willing to pay for each conversion and still maintain your profit margin.

If you are a beginner in Google Ads use ‘Target CPA bidding’.

Start with the recommended bid.

If you are an experienced Google Ads user, then use your max. profitable CPA as the target CPA and don’t use the ‘Target CPA’ bidding option.

Manage your bids manually, so that you can also optimize for first click and middle click keywords as explained above and take multi-channels attributions into account.

Competitive Metrics used in Google Ads

Competitive metrics are some of the most useful metrics available in Google Ads for understanding the performance of Google Ads campaigns. 

I generally look at these metrics first, to quickly determine the overall performance of an Ads account.

#1 Search Lost IS (rank) 

It is the estimated percentage of ad impressions on Google Search Network that your ads did not receive because of poor ad rank.

So if you see a high search lost IS (rank) percentage then it means the Google Ads campaigns are managed poorly.

#2 Search Lost IS (budget)

It is the estimated percentage of ad impressions on Google Search Network that your ads did not receive because of a low budget.

So if you see a high search lost IS (budget) percentage then it means you need to increase the campaign budget.

#3 Display Lost IS (rank) 

It is the estimated percentage of ad impressions on Google Display Network that your ads did not receive because of poor ad rank.

#4 Display Lost IS (budget) 

It is the estimated percentage of ad impressions on Google Display Network that your ads did not receive because of a low budget.

#5 Search Impr. Share 

It is the percentage of eligible impressions your ads received on the Google search network.

The higher the search impression share, the better, as it means your ads are receiving the maximum number of impressions they are eligible for.

#7 Display Impr. Share 

It is the percentage of eligible impressions your ads received on the Google display network.

The higher the display impression share, the better, as it means your ads are receiving the maximum number of impressions that they are eligible for.

#8 Relative CTR 

Through this metric, you can get an idea of how your ads are performing on Google Display Network in comparison to the other ads on the same websites.

A relative CTR of 1x means that the CTR of your Display ad is equal to the average CTR of other ads running in the same section on a website.

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Performance Metrics used in Google Ads

Following metrics are frequently used to measure the performance/effectiveness of campaigns, ad groups, ads and keywords:

#1 Clicks – number of clicks on your ad

#2 Impr.(impressions) – the number of times your ad is seen by people.

#3 CTR (click through rate) – it measures how often people click on your ad after it is shown to them. CTR measures the effectiveness of your ads. CTR = ad clicks / ad impressions.

#4 Avg. CPC – it is the average amount you pay for each click on an ad.

#5 Avg. CPM – it is the average amount you pay for every thousand impressions of your ad.

#6 Cost – it is the sum of total ad clicks cost and total ad impressions cost. It does not include other costs like cost per call.

#7 Avg. Pos.- it is the average position of your ad.

#8 Total Cost – it includes all types of costs (total ad clicks cost, total ad impressions cost, total phone cost)

#9 Engagements – number of times a person expands your lightbox ad.

#10 Engagement rate – it measures how often people expand your lightbox ad after it is shown to them. Engagement rate measures the effectiveness of your lightbox ads. Engagement rate = total engagements / total ad impressions.

#11 Avg. CPE (cost per engagement) – it is the average amount you pay for each ad engagement.

#12 Views – it is the number of times your video ads were viewed. Google Ads count only those views where a person has watched at least 30 seconds of video (unless the video itself is shorter than 30 seconds)

#13 View rate – it measures how often people watch a video after the corresponding video ad (including thumbnail) is shown to them. View rate measures the effectiveness of your video ads. View rate = total views / total ad impressions.

#14 Avg. CPV  (Cost per view) – it is the average amount you pay for each video view.

#15 Avg. Cost  – it is the average amount you pay for each ad interaction (ad clicks, video views).

#16 Interactions – it is the total number of ad interactions (ad clicks, video views)

#17 Interaction rate – it measures how often people interact (click, view) with your ad after it is shown to them. It measures the effectiveness of your ads.

#18 Video played to: 25%, 50%, 75%, 100% – it measures the percentage of people who watched video to a particular length (25%, 50%, 75%, 100%). So if the video played to 50% is 10%, then it means, 10% of people watched 50% of the video.

Conversion Metrics used in Google Ads

Once you have set up conversion tracking in Google Ads, you can then see all of the following conversion data for your Google Ads campaigns, ad groups, ads, ad placement and keywords:

#1 Conversions – it is the number of conversions (sales, leads, signups, downloads or any action you defined as conversion) generated by your campaign, ad group, ad or keyword. It does not include cross-device conversions.

#2 Cost/conv – it is the average amount you pay for a conversion (excluding cross-device conversions)

#3 Conv.rate -it is the percentage of ad interactions (clicks, views) that resulted in a conversion.  It measures, how often an ad interaction resulted in a conversion.

#4 All Conv. – it includes all of the conversions reported in the ‘conversions’ column + additional conversions (like cross-device conversions)

#5 View-through conv.- It is the conversion triggered through an impression (viewing) of a display network ad that has not been clicked in the last 30 days.

#6 Cost/ all conv – it is the average amount you pay for any type of conversion.

#7 Cross-device conv. – it is the total number of cross-device conversions. In the case of cross-device conversions, an ad interaction (click, view) take place on one device and the resulting conversion takes place on a different device or browser.

#8 Converted clicks – it is the number of unique ad clicks that resulted in one or more conversions.

#9 Cost / converted clicks – it is the average amount you pay for each converted click.

#10 Click conversion rate – it is the percentage of total ad clicks that resulted in converted clicks. It measures, how often a click on your ad resulted in a conversion.

#11 Total conv. value – it is the total value of all of your conversions.

#12 Value / conv. – it is the average value of a conversion.

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