Stop Burning Your Adwords Budget

By August 3, 2018Data Analytics
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Much of modern marketing is based around clicks. The goal of an ad is to get a click and convert as many clicks as possible. Many companies live and die from chasing clicks. Adwords can be a tool of prosperity as well as a tool of destruction. In this post, I will talk about some simple optimization tactics to make your spending more effective and give you the best return on investment.

Power of Visualization

Visualizations are important because people do not learn by reading the same way they learn by seeing. Two out of every three people will learn best by processing a visualization or some sort of visual cue. We have all sat through boring presentations before, and usually, these type of presentations consist of pages of text with maybe a few charts laid in. Simple yet elegant visualizations stand out and gain the approval of an audience much better. A wide range of visualization tools exist on the market. A few of the best ones are Tableau, R shiny, Gephi, and D3.

Tableau is a program you have to buy, but it’s the best dashboard on the market. It integrates well with AWS and other programs. If you’re an analyst at an organization with the purpose of visualization, Tableau is definitely where you should start. R is the 5th most popular programming language in the world (IEEE 2016). R Shiny allows you to build dashboards through R. Because of its popularity you can find the answers to almost any problem on both Google and the R Subreddit (r/rstats). Gephi is great for really large datasets. If you need a lot of interactive data tables or graphics, Gephi or D3 should be at the top of your list. One caveat with D3 is that you need to be a Java programmer to utilize it correctly because you are custom building your own dashboard, which is both a pro and a con.

When it comes to adwords specifically, Adword dashboard is a pretty good place to start. It’s great for 2-variable visualizations, but begins to show its weaknesses when more variables are added. The adwords dashboard also can’t recognize patterns as well as some of the previously mentioned programs. You can download the files to CSV on the adwords dashboard. That will put all of the data into columns and allow you to see all of the raw data. Before doing this, you must recognize what you need to know. There needs to be a clear objective in mind, whether it pertains to the wording, messaging, time of day, etc. You then can build your report in adwords and download the data. Now you can move into something like R or Tableau to create your visualization.

Controlling For Time

Not all times are created equal. Obvious seasonality exists in many markets. One being the retail market, where fourth-quarter sales are much higher than any other quarter. In some companies, the fourth quarter can make up as much as 75% of total yearly revenue. Understanding seasonality and the way in which time affects revenue is essential, and it’s one of the things you have access to in Adwords.

Usually, when talking about Adword performance, you look at three things: what keywords did you use, the quality score, and your max bid price. These don’t solely define a campaign, but are the three most notable when controlling for time.

The key to controlling for time is to be constantly paying attention to patterns in performance. Whether it be the time of day, month of the year, sometimes even specific weeks out of each month. If you’re paying close attention to the patterns of changing performance, you’ll start to visually see them so you can hunt down what’s going on and why. This is important because you can then recognize what times of day, or days of the week, have less impact, and change the amount you’re willing to spend.

Please note that everything that’s been mentioned is strictly referencing clicks versus conversions. Determining whether the cost during that specific time was worth it is outside of Adwords. Even though someone may be clicking and converting, it may not lead to profitability for your company. Ultimately, the question that matters is “who do I actually end up getting that was worth the cost and effort.”  Buying profitable customers is key. There may be times when you get more total conversions, but relatively still not as many high-value conversions.

Game Theory and Agile Research

Game theory is an entire discipline of economics that involves how the strategies and decisions of two or more separate parties impact each other. Utilizing game theory allows you to plan your campaigns to not only react to the market but shape the market. A large reason why game theory is so critical to Adwords is that Google intentionally modeled Adwords by game theory. They hired Hal Varian, one of the greatest living applied Economists, to build the Adwords auction. Varian put a system into place. Varian recognized that the goal of an auctioneer is to get people to bid what they feel the product actually is worth, rather than using the auction format to lowball. To ensure this happened, Varian put a system in place where when the company who bids the highest has an equal quality score to a lower bidder, they end up paying less. This means that bidding as high as you’re willing to is every company’s dominant strategy in the auction.

What you must learn is how to plan out your strategies and use game theory to find the ideal bidding strategy and keywords. Additionally, you have to ensure your ads are formatted the proper way, from keyword to keyword and/or competitor to competitor. Here are a couple of things you’ll need:

  • Ability to measure the expected outcome of leads.
  • Know who you’re competing against, what their spend is, and (ideally) their revenue and production structure. (In competitive markets, you can often assume symmetry to yourself if this information is unavailable)

It’s crucial to know the value of your customers. If a group of customers only generate $100 of revenue each, and only 50% of your leads purchase, you should never spend more than $50 to acquire those customers. The ideal method of finding these values is to integrate with a CRM, which gives you critical financial information on the value of a customer or segment. The Pareto Principle says that approximately 80% of your revenue is coming from 20% of your customers, so identifying that group and figuring out how to target them is a high priority. If you don’t have CRM, use the average value of a customer. It’s not the best, but will still be applicable.

This is where the agile research approach comes in. Dashboards and A/B testing are reactive, they tell you what’s already happened but usually fail to explain why something worked. Agile research helps your competitive bidding by providing the necessary information that doesn’t reside in Adwords. Agile research helps you solve all of the little problems because you will come back after every two-week sprint and continue to do analysis and build on your knowledge base. In traditional market research you go in with a problem then six months later you have an answer, but that answer might already be somewhat outdated. With the Agile approach, you can remain aware of shifting preferences. Implementing Agile methodology into your research allows you to keep up with this constant change.

Utilizing both game theory and Agile research will give you confidence that you’re putting your money in the most profitable position with Adwords. First, you will constantly be ahead of your competitors. Second, you will know that your Adwords budget isn’t combusting and getting no results. Ultimately, you will know how to target the customers who are generating the majority of your revenue, maximizing your earnings.