AdWords sucking money.

Why The Change To AdWords Daily Budgets Sucks

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Google announced on October 4th that they’re making a significant change to how they treat your daily AdWords ad budget. I’m sure the title of this post let’s you know where I stand on the issue but before we get into why that is let’s borrow a paragraph from their announcement and then we’ll analyze it a bit.  They wrote:

“Internet traffic is like an ocean. Some days, there will be small waves. Other days, there will be great big ones. So, if your ads don’t show up much because of low traffic, then we’ll make up for that by showing them more when traffic’s higher.

That’s why we allow up to 2 times the clicks in a day than your daily budget allows. This is called overdelivery. And it’s a good thing: if we end up showing your ad too much — to the point where you accrue more costs than your daily budget allows for over a billing cycle — then we’ll give you a credit for those extra costs.”

So let’s take a quick peek at why this is rubbish.

First Of All

Unless Google has a crystal ball they don’t know when the big and small waves are coming. What they’re asking us to do now is to trust their systems to best predict those trends and here’s the real clincher … to do this in a way that maximizes our own revenue and not theirs. Here’s the problem … these goals can be at odds with each other and in that scenario I’d rather be the one with my hand on the wheel thank you.

Google putting advertisers in a spot where their budgets can be doubled effectively grants Google the ability to position advertisers to bid more against each other.  Let’s consider for a moment two advertisers named Dave and Jim.  Dave bids $1/click with a daily budget of $100 where Jim bids $0.99 but has a daily budget of $50. For our purposes here we’ll assume there are other advertisers bidding lower than Jim and let’s say the next highest advertiser is bidding $0.80/click and that all else in equal.

With Google allowed to double the daily budget rather than Dave hitting his limit at 100 clicks (or 120 with their 1.2 multiplier) he will now be bidding $1 per click up to $200/day (for 15 days at least).  Now – that might not seem like a big deal … in the end Dave is still paying about $3,000/mth right? But that’s not where the evil is.

Evil hiding

In position one you would be expected to get 34% of the paid clicks and in position two it drops to ~24.5%.  Now let’s think about what would happen to Dave’s bids through the day in these scenarios and let’s say there are 500 paid clicks available …

  • With a $50 daily budget and paying $0.81/click (one cent above the next highest) Jim will get ~62 clicks. His budget is then exhausted for the day.
  • During the time Jim is in the auction Dave is paying $1/click after which he is paying $0.81/click. With his daily budget and factoring for click share Dave would be paying the full $1 for 86 clicks meaning in total for the day he would get ~103.3 clicks.
  • With Jim’s budget able to double Dave will be paying the full $1/click for all the clicks he receives and what’s more – since Dave’s budget can also double and since Dave will be in the higher position and thus receiving more clicks Google would want to push Dave’s budget to a multiplier of 1.75.  What this would do is see Dave paying $1/click up until Jim’s budget runs out and then drop both from the bidding having maximized the revenue from each and leaving Dave in the auction for more days rather than drop his bid to $0.81.

Basically this is a war of fractions. It does require that there are always fresh advertisers coming into the AdWords system but then – it always did which is part of why they give out promo codes (link no longer available) and push the system so much.

Food For Thought – we tend to think of AdWords promo codes as a lure to draw in new advertisers. This is true but consider for fun that with that new advertiser comes a new bid and with that bid comes the pushing up of the CPC of the advertisers above them. A win/win.

So … we’ll get less clicks for our budget. But that’s not the only reason I hate this new “feature” …

Why Else Dave?

Glad you asked – let’s now consider the wonderful month of November which is coming up shortly and with it … Black Friday and Cyber Monday.  It sure would be nice for your ads to be showing up during this peak of holiday shopping wouldn’t it? To bad your budget may well be exhausted before then.

With the ability to double your daily bids your budget could conceivably be used up by the 15th of the month leaving you adless through this key period. Unless you increase your daily budget or add in some new campaigns with fresh budgets. Not that Google would try to prod you to spend more than you wanted in this way of course.

So What Do You Do?

This is a fairly new area and thus I haven’t had a chance to really toy around with it yet but one of the key areas I’m going to be looking at is using bid adjustments more aggressively knowing that where some may have been cost-prohibitive to setup previously they may not be now (that is to say – where the management time and cost would have exceeded the benefit to the campaign).  I’m also going to be looking at breaking up campaigns to get better control of individual budgets and dropping the daily maximum and individual keyword bids in scenarios where I see campaigns crossing over the daily budget often.

It’s Not All Bad …

There is a silver lining … those who are aware of what’s going on will have a huge advantage over those who aren’t paying attention or don’t understand what this change really means. So better said … it is all bad for them but it’s not all bad for us. Knowing to watch what you’re actually spending each day, managing your daily budgets ongoing to ensure it’s there when you need it (like dropping your daily budgets early in November to make sure it’s available in later in the month when you can increase it) and toying with bid adjustments and bids to conserve your budget and make sure you’re not being used like Dave was in the example above – being pushed to higher click costs through the manipulation of Jim’s daily budget is what will be required in this brave new world.

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