The fall-out from Google’s Hal Varian Quality Score Video continues.
One early impact was finally understanding exactly how quality score impacts your cost-per-click.
A more interesting idea to get your head around: Your bid is not used in the calculation of your cost-per-click.
Isn’t that amazing?
How CPC is determined
Using the information from the Google video, and some other Google-documented facts, let’s look at the exact sequence of steps that determine the position and cost-per-click of your ad.
- Joe Smith types his search query into Google and clicks ‘Search’
- Google and (using their ‘infinite wisdom’ machine) decide which advertisers have keywords and match types and budgets and geo-targeted day-parts that make their ads eligible to be shown.
- Google calculates, in real-time, the Quality Score for each eligible keyword.
- Google multiplies Quality Score x MaxCPC for each eligible keyword to determine the Ad Rank of each keyword.
- The eligible keywords are sorted by Ad-Rank, highest to lowest.
- Starting from the top of the list, the CPC for each keyword is calculated by taking the Ad Rank of KW below it, and dividing it by the KW’s QS
So if my Ad Rank is 50 and my QS=7, and the following keyword’s Ad Rank is 45, my CPC = 45/7 = $6.42.
Bid Is Not A Direct Factor
Notice in Step 6: The bid was not a direct factor in the computation of the cost-per-click. It has a major influence, but it’s indirect, by determining your Ad Rank, which determines which keyword your rank above and that keywords rank is used to determine your CPC (by dividing by your quality score).
The ramification of this, beyond being a cool way to trip up friends at PPC cocktail parties, is that we have to rethink the idea of changing bids to change our costs or positions. There is an effect and relationship, but it is far less direct that we typically think.
Just to finalize, there are some steps after the above sequence before the entire process is complete.
- For the last keyword in the list, Google uses some minimum required bid to determine the price.
- There is a minimum CPC below which ads will not appear – so not every keyword on the original list is displayed. Google decides this CPC, and perhaps how many ads they want to appear. The point is that some (or many) eligible keyword’s ads are not shown.
- After the rank and price is set, Google checks the MaxCPC of each KW against the MinBid required for a TOP position (ads that appear over the organic listings rather than on the right) and may move some ads to the TOP. Note that this decision is based on MaxCPC not CPC, and an ad in Position 4 may jump over an ad in Position 3 to get to the top if it had a higher MaxCPC.
PS: I’m hard at work on my way-behind-schedule ebook ‘High Resolution PPC’. If you like this kind of how-it-really-works thinking about paid search, I think you’ll enjoy the book. Sign up now and we’ll alert you as soon as I can finish and you can download.
All the recent talk about Quality Score got me to finally figure out how to build a ClickEquations Analyst template that I’ve been wanting to for some time now.
It shows you all the keywords whose Quality Score has changed from the prior period. It could be yesterday vs the day before, this week vs last week, or last month vs the month before.
So you can try to figure out why. Or make a new bidding decision. Or just marvel at the mysteries of Google.
Like all ClickEquations Analyst reports, to use it you simply open Microsoft Excel, open the report, and open the ‘Quick-Change’ palette to select the date range you like to report on.
Click Apply and hold your breath, in this case, for about 90 seconds.
The image above shows a zoom-in on the core data the report provides. There is one tab in Excel for the Quality Score gainers and another for the losers.
This new report will be released to ClickEquations clients as an Analyst template set update in the very near future.
If you can’t wait that long, email support and we’ll get you a copy.
You don’t use ClickEquations for PPC management, reporting, and bidding? Click Here.
In the paid search world, Quality Score is the new black. Blogs, forums, conferences, and Twitter are full of discussions of what quality score is and how you can optimize it.
But the real importance of quality score has been a bit hard to pin down. Not any more – we’re going to reveal the exact $$ value of quality score.
UPDATE: Since this post was written, we’ve learned an important new fact about Quality Score – the numbers we’re shown are reported as integers between 1 and 10, but these are not the numbers or scale Google applies to in their formulas. Rather, they’re representative of the actual Quality Score in terms of 1 being poor and 10 being great. Knowing this, it seems unlikely the specific math and results described in this post are correct. The positive and negative effects of good and bad quality score remain true, and hopefully the numbers are roughly proportional. We’ll update this post further when we get more information.
Why Does Quality Score Really Matter?
The prominence of quality score has been based on it’s role in Ad Rank – the formula Google uses to determine the position in which your ad appears. Ad Rank = Bid x Quality Score.
But Quality Score also plays a very important role in determining how much you’re charged per click. This is a separate application of the value which occurs after Ad Rank is calculated.
The recently released Google Video by Google’s Chief Economist, Hal Varian helped clarify this point.
In the video Mr. Varian points out that your cost-per-click is calculated using the formula: Ad Rank of the ad below yours / your quality score.
So if you’re in position #1 with a quality score of 5, and the ad in position #2 has an Ad Rank of 10, your cost-per-click is 10/5 = $2.
So What Is Quality Score Worth?
Knowing this is how cost-per-click is calculated, we’re able to determine the specific impact of any quality score on your cost-per-click.
And therefore the exact cost or savings from any single-digit increase or decrease in your quality score.
Yes that’s right – we can tell you the specific change in your CPC that is due to the quality score you’re getting for each of your keywords.
For example, your QS=10 keywords are enjoying a 30% CPC discount as compared to if they were QS=7 and in the same position. And your QS=4 keywords are paying a whopping 75% premium for their position.
The table below contains the complete list. This details the positive or negative impact quality score is having on the CPC prices you’re paying.
These factors are true regardless of your bid, position or those of your competitors. These are the impacts of Quality Score on your cost-per-click, anywhere, anytime.
As you can see, there are serious savings to be had with high quality scores (8, 9, or 10) and very high penalty costs to low quality scores (6 or below).
How We Calculated These Numbers
We calculated these values by comparing the impact of quality score on the price established at a wide range of Ad Rank values. This analysis showed that when QS was applied as the denominator of the equation, the Ad Rank values didn’t matter – the impact of each step of quality score was consistent. (Check out the raw data). So it was a simple task to compute percentage of impact each different QS had on CPC.
Note that we set QS=7 as the neutral value because using ClickEquations to review a wide range of accounts we’ve seen that QS=7 appears to be the mean quality score across a very large and diverse set of keywords.
In other words, most keywords get QS=7, that’s the typical score. So quality scores better than 7 can be considered better-than-average and thereby beneficial, and quality scores lower than 7 are lower-than-average and detrimental.
Two Important Disclaimers
1) Since quality score is used to first compute the Ad Rank and then to influence the CPC, you wouldn’t actually have the position you do if you didn’t have that quality score.
So it isn’t exactly accurate to say that your keyword is paying 30% less for position 1 at QS=10 than at QS=7, because in most cases you wouldn’t be at position 1 if you did have a QS=7. I think the relative value for each QS remains valid and valuable.
2) Google very likely calculates quality score not as an integer but as a real number (you your QS isn’t actually 6 but rather 6.329498) which means the impact would be more linear and not in the big steps the charts suggest. Thanks to commenters for pointing out that this fact was left out of the original post.
What Does A 1-Point Change Cost You?
Based on the same numbers, this next table documents the economic cost or benefit of having your quality score move up or down by 1 point.
As you can see, if your QS=9, then moving up 1 pt (to QS=10) will give you a 10% CPC discount. Starting from that same QS=9 and losing 1 pt (to QS=8) will result a 12.5% % CPC increase.
A Clear New Reason To Improve Your Quality Score
Knowing that your quality scores are saving you up to 30%, or costing you up to 133%, should further motivate everyone to both know and work to improve your quality scores.
In ClickEquations we have a lot of features that can help you improve quality score:
- We list QS (and the related Min First Page Bid) right next to each keyword so you can watch them carefully.
- Our ClickShare metrics tell you which ad groups and keywords aren’t getting as many clicks as they should – and why – which can help you drive up CTR which is by far the largest driver of quality score.
- Our ClickVariance metric tells you when you’ve got keywords in ad groups which are under-performing based on CTR, so you can move them into their own groups and write more applicable ads, or pause/delete them – thereby driving up average CTR
- Our complete search query detailed reporting lets you add new keywords and phrases that users have proven that they click on
- Our multivariate text-ad testing tool is the best possible way to drive up CTR – often by 2X-5X which skyrockets quality score
- The Quality Score Distribution template in ClickEquations Analyst lets you keep a direct eye on how your entire campaign is doing relative to Quality Score – and we’ve just updated it to show the actual $$ saved and expended due to the quality score cost numbers released in this post.
Click To Enlarge
And A Warning
One small word of caution regarding the existing, and likely to continue, flood of tips on improving quality score. Be very suspect of anything which promises to improve quality score by any method other than improving click-through-rate.
Relevance has it’s place. But both the new Google Video and other recent disclosures make clear that CTR drives quality score. You will not have meaningful impact getting your keywords into your text-ads, grouping keywords in better ways, and many of the other tactics getting over-hyped in some quarters. Relevance plays a supporting role, as does landing page to an even lesser degree, but both are trumped and trounced by CTR. Get great CTRs and you’ll get great QS’s. There is no other route.
We hope you’re as excited as we are about the discovery of the true economic benefit and cost of quality score.
Another small victory for transparency in the paid search process. Which means another tool to help us manage PPC in High Resolution.
To learn more about quality score, read our complete Quality Score blog post series from several months ago, or check out the replay of our recent Quality Score webinar or our SMX presentation on Quality Score Tips on video.
Google Adwords Quality Score is perhaps the most talked about subject in PPCLand. It’s one we’ve spend a lot of time writing about over the past few months.
In this new video, Google’s Chief Economist, Mr. Hal Varian, provides a great overview of how Quality Score works in practice in the ‘Ad Auction’ which controls when, where, and for how much your PPC ads are displayed on Google.
This is absolutely must-see online video for anyone managing paid search campaigns. No matter how much or little you know about QS, this video is worth your time.
At SMX last week I also participated on a great panel called Up Close With Google AdWords Quality Score.
Panelist this time were Addie Conner (Director of Search Marketing, Course Advisor Inc.) and Nicholas Fox (Business Product Management Director, AdWords, Google Inc.). Our moderator again was Matt Van Wagner (President, Find Me Faster)
Nick from Google presented first, and I must say made me a little nervous.
After all, most Google Quality Score information is less than well documented, and my fear was that Nick (having the advantage of actual knowledge and facts) would say and show things that proved my own pending presentation less than accurate.
His presentation was very good and informative, both confirming and shedding additional light on what we know about Quality Score. (And thankfully, not contradicting my slides! Whew.)
A few of Nick’s points I found particularly interesting:
- Nick confirmed that Quality Score is primarily CTR driven. He used a ‘wisdom of the crowds’ analogy to say that people vote with their clicks and overall they tell Google if an ad and landing page are appropriate for a given keyword.
- He also explained that landing page problems – like a page full of adwords ads or promises of ‘free’ items that aren’t really free – do result in extremely low quality score regardless of CTR. And that these pages or ads aren’t banned, but would have to bid extremely high to overcome their quality score and be shown.
- In what I thought was a revealing organization on a slide, he showed that good made four separate decisions about an ad: showing, rank, top (vs left) and price. I’ll write more on this later but the idea that these were separate decisions and not rolled into one process surprised me.
Addie played a Truth/Myth game with the audience, having handed out voting signs earlier. Her questions were deep, and she clearly has made a deep study of the subject. I’m not sure anyone in the audience got 100% correct.
My presentation included:
- An overview of the role Quality Score plays for search advertisers
- A summary of how Impression Share lets you see the cost of poor Quality Score
- Some statistical analysis of Quality Score we’ve done using ClickEquations Analyst
This 10-minute presentation is now available via YouTube:
More on Quality Score:
I’m still rather obsessed with the new Quality Score metric available in the Adwords API and now inside of ClickEquations.
I’ve been using it to analyze performance of keywords in our PPC accounts, and doing some analysis of client data to try and understand the relationship between Quality Score and performance.
Trending is going to be the most interesting, but the data history is still too short for much of that. But I’ve built this cool account snapshot in ClickEquations analyst that shows what percent of the keywords in an account are getting what Quality Score, and how each level is performing.
Click To Enlarge
This template counts the keywords by Quality Score level, and plots them on a chart against revenue from each keyword group. Clearly there are other contributors – brand terms are more likely to be QS=10 for example, but in running this against nearly a dozen different accounts thus far I’ve seen that the patterns are not consistent – your choices drive quality score, it’s not uniformly applied.
ClickEquations clients and trial customers can have this template free of charge – just contact your support representative.
To learn more about Quality Score, check out our recent Quality Score Post Series.
But I think Ad-Rank deserves a little attention first.
Ad-Rank doesn’t get very much attention – certainly a lot less than bidding, and even a lot less than Quality Score. But Ad-Rank determines your position, and to some degree whether your ads display at all.
According to Google, “Ads are positioned on search and content pages based on their Ad Rank. The ad with the highest Ad Rank appears in the first position, and so on down the page.”
Ad-Rank = CPC bid (Max CPC) × Quality Score
So we bid to gain Ad-Rank.
And we care about Quality Score because (among other things) it helps us achieve Ad-Rank.
Ad-Rank and Quality Score
Quality Score is important because it is weighted equally with your bid in determining where/if your ads run. The two factors are intertwined and the result is interdependent.
As the chart at right shows, you can get the same Ad-Rank with a lot lower bid by improving your quality score.
And as Quality Score gets more important, bidding gets less important. Not unimportant, but less important. It’s a zero-sum game.
Ad-Rank and Bidding
Yet while Quality Score is getting more visibility and mind-share than ever before, I’m not sure its ascent is being considered when thinking and acting on bidding.
Creating bidding strategies and running bidding rules or using bidding algorithms that don’t take QS into account at all, seems strange and seriously sub-optimal.
Traditionally bids are decided in an effort to impact position, and often the assumption is made that when an increased bid resulted in a higher ROAS or ROI, it was the change to the bid that was the direct cause – but I don’t know of a rule or algorithm in any PPC software today that either a) checks the actual position impact or b) checks to see if a Quality Score change was a mitigating factor.
It should of course now be noted that both bid and quality score increases have other impacts beyond their influence on Ad-Rank; Google has said that minimum bid and quality score thresholds are set for achieving Top (as opposed to Right Column) positioning, for example. So there are cases where it’s wise to increase your bid regardless of Quality Score issues.
Ad-Rank and You
The core tenant of High Resolution PPC is that we’ve all been lulled into an over-simplified view of how paid search works, both to accelerate our adoption, simplify our understanding, and keep us from complaining about really unfair or opaque aspects of the system that is taking our money.
Ad-Rank is an open secret. It’s well documented, easy to understand, extremely important, and almost never discussed. Time to change that.
We’re pleased to announce that Google Adwords Quality Score and First Page Bid metrics are now available in ClickEquations.
All clients and trial customers can see these metrics in the Keyword Report tab. They’re also available in Excel via ClickEquations Analyst.
After our recent Quality-Score-palooza it’s clear the impact of Quality Score is growing for Adwords Advertisers.
We’re glad to be the first Paid Search Platform to deliver this important information in our product.
High ‘First Page Bid’ Problems
As with many metrics, ClickEquations Analyst makes it possible to turn data into actionable information and save a lot of time.
Our new First Page Bid Report template does just that. It reports your Google keywords sorted in descending order of First Page Bid, showing the current bid and amount to increase your MaxCPC to hit the First Page Bid (if that’s what you want to do).
This makes it easy to spot new high First Page Bids that might occur if your Quality Score drops, if competitors move in, or Google makes algorithm changes.
Click Image To Enlarge
The current Quality Score of the keyword is shown too, so you can decide if you’d like to change the bid or work on the Quality Score.
As with all ClickEquations Analyst reports, you can update the data with a single click, or run the report for different accounts or clients.
The new report will be provided to ClickEquations customers without charge.
Want your own First Page Bid Report? Start a ClickEquations Trial today!
For me this focus was eye opening. I’d never considered QS so fully, researched it so thoroughly, or thought about it so deeply. That was a mistake.
Quality Score is the secret sauce in Google Adwords. It plays a huge rule in nearly everything advertisers care about; when and where ads run, how ads rank, and what ads cost-per-click.
Quality Score – along with their Broad Match and Automatic Matching formulas – give Google a huge set of levers and dials to play with at will.
As they do, our ads and ad-budgets jerk around like marionettes.
I’m left with two conclusions:
- The lack of transparency is astounding. Everything Google is doing is reasonable and legitimate from a business perspective. They’re optimizing their product to maximize their revenue, and trying to make their customers feel good so they spend a lot of money and are happy about it. But advertisers can’t and don’t know what’s going on in the black box of Quality Score. We’ve got some clues, there has been more clarity recently than historically, but the playing field we’re on is far from level.
- Paid search managers must prioritize Quality Score management. This means a lot of things as we’ve discussed; small tight keyword groupings, focused text-ad and landing-page copy, paying attention to the published Quality Score numbers themselves, starting new campaigns slowly, not letting losers hang out, even in dark corners of your campaign, and much more. It all adds up to an increase in workload, responsibility, and the need for specialized tools to have any chance to real success
I used to think of Quality Score as an ‘other factor’ in campaign management and success.
Now I think it’s one leg in the three-legged stool of the PPC process.
Campaign organization, Bidding, and Quality Score must all have equal and appropriate attention to make paid search really work.
(Although a more complete picture is the Target-Value-Satisfy-Understand model of ‘High Resolution PPC’ with Quality Score being a piece of the Valuation component.)
Where Are The Quality Score Tools?
As a final point, given this realization, I must say that the tools for helping manage the importance of Quality Score are sorely missing. Right now the Quality Score number itself is available only inside of Adwords – although it is now in the API so we can expect third party vendors to support it soon.
But the broader issues of focus, alignment and relevance between components, and the impact Quality Score has on bidding and position is almost entirely unsupported or assisted by the tools on the market.
The ClickVariance variable in ClickEquations does help identify AdGroups with keywords that are too diverse from a performance perspective, which is at least a start in the right direction.
That makes the reality of taking advantage of whatever understand we’ve gained about Quality Score very difficult. Today it will require a lot of manual effort and hours of work.
But from a ClickEquations viewpoint it’s an opportunity we’ll address.
We have a few questions left from last week’s Quality Score webinar (watch the replay) with Bryan Eisenberg. The first batch of 10 Quality Score Questions/Answers are here, and the second batch of 10 more Quality Score Questions/Answers are here.
Any more? Post ‘em in the comments.
Q: Does using the keyword in the title and description and URL produce a high Quality Score?
A: Repeating a keyword in the text-ad and landing page and yes even the URL (not often possible certainly does produce a part of the relevance that delivers a good Quality Score. But remember that CTR is the most important attribute, there are other components too (like load time etc.) and almost certainly the relevance calculation is somehow more complex. So nothing other than doing everything right (with everything being a set of things and measures we don’t know) will guarentee a high Quality Score
Q: What is the most optimized landing page in terms of Quality Score?
A: One that is perfectly relevant to the keyword, search query, and text in the ad, and gets people to stay (low bounce rate) and probably move forward (another click if not a conversion). Beyond that, nobody knows.
Q: Can high impression low Quality Score keywords impact low impression keywords?
A: Yes. Their are overall Quality Score for an Adgroup and for the Account components which impact everything. This is why improving or removing low CTR keywords and text-ads is important to overall and broad Quality Score.
Q: How many impressions should an ad get before evaluating it’s CTR?
A: It depends upon margin of error you’re willing to tolerate. A simple calculation for the margin-of-error in any sample size can be calculated as 1/SquareRoot-of-Sample-Size. So, with 100 impressions your margin of error is 1/10 or +/-10%. For an ad with a CTR of 7%, this is clearly an unacceptable margin of error. For a brand keyword/ad where CTR is in the 40-50% range, this margin of error is probably acceptable. A good general guideline is that brand ads should probably see something on the order of 100-150 impressions and that general ads should see at least 200-300 impressions before making any meaningful decisions. More impressions yield even greater confidence levels.