If you spend any time at all on the Google AdWords Community Forum (I am a Top Contributor there, so I probably spend more time than most!) you will come across posts where AdWords is decried as a scam or a rip off. Cheating small businesses out of their hard earned marketing budgets whilst giving special treatment to the fat cats with the big budgets… yes, we see that a lot.
But this is actually a reflection of the major difference between Google AdWords and traditional advertising models.
If you want to advertise in any magazine, newspaper, radio station, billboard, TV station, etc. you will be presented with a rate card for the ad slot. A full page will cost you so many thousand dollars, a half page just over half that, and so on.
The media have traditionally established their rates based on what they feel advertisers are willing to pay. and then they increase annually by whatever percentage they feel the market can accommodate. Often rate changes reflect the distribution changes – if the print run is increased, so the price increases. Sometimes the geographic range an advertiser services will impact on the price and, generally, there is some room for negotiation depending upon the total spend. But the media set the price.
If you want to run your ad, you pay the price the media establish.
With Google AdWords things are different. Google have ad slots on their search results page and they also have ad slots which they essentially lease from web publishers under a kind of profit sharing agreement.
They then allow advertisers to bid for these positions through their auction based network. It’s a little more complex than your regular auction, but it is an auction nonetheless.
As a result, the market determines the price that must be paid for the ad slot. Not Google.
There are no grounds for the complaint that “Google make it too expensive to compete” in certain verticals. They don’t, your competition does.
You cannot go the New York Times and tell them you would like to advertise on the front page – and you are happy to pay $10… and expect them to accept your offer.
If you are having to pay $50 or $60 dollars for a click to your website (and, yes, people do pay this) then you had better make sure that those clicks pay for themselves. And that is what the successful advertisers do. They have optimised their websites and their AdWords accounts to the point where they know that paying $60 is profitable. not many advertisers can be that confident.
We must work back from the end point. How much is a customer worth to our business? And not just today – but over the average customer lifetime. If, for example, you are a hairdresser the first visit may be worth $40 to you. Is it worth paying $50 to get that first appointment? On the face of it that would be a crazy proposition. But marketing is built on these propositions. Most people will stick with a hairdresser once they have found one they like. And if the new client has a monthly appointment that would mean $480 in the first year and $4,800 over the first 10 years. If you knew that the customer would spend $4,800 over the next 10 years, you would be happy to pay significantly more for the initial visit.
This is why some of the companies that dominate certain verticals are willing to outbid their competitors. They know that the mid to long term proposition is significantly different from the today and tomorrow view.
It is not what things cost that is important – rather it is what they are worth. The clicks we attract to our website at 10 cents each but that do not convert into business are worthless. It is the $10 click that turns into a paying customer that builds our business.
As with many things, with Google AdWords we do truly get what we pay for – and that is our position in the marketplace as determined by our competitors. This is as close to a free market economy that we are likely to see. you get upset because Google
So the next time you get upset because Google are making you pay too much for your ads, please remember, it’s not them… it’s your competitors.