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Google's Conversion Optimizer, or is it Google's Profit Killer?

Mar 6, 2008
The Google Conversion Optimizer has been generating a considerable amount of buzz amongst AdWords advertisers. Google continues to lead the other search engines by providing their customers with tools designed to improve the performance of PPC campaigns. This new tool from Google is another step in the right direction; however, it is not for everybody. If you are unaware of exactly how the tool works and for whom it is best suited for, you could find that the Conversion Optimizer is really a Profit Killer.

By reviewing the tool, reading the FAQ, and drilling into the answers that Google provides, you can really gain some insight into how the tool works. In addition, if you read the Success Stories, you will get a better understanding of whom the tool is best suited for. I have taken the liberty of dissecting the tool, the FAQ and the Success Stories so that you don't have to.

The Tool:

The name of the tool is a bit misleading. A true "Conversion Optimizer" would be an algorithm that determines the ideal bid price and ad position for your ads to produce the maximum amount of conversions for your given ad budget. Google's Conversion Optimizer works to get conversions at a desired cost-per-acquisition (CPA). These are two entirely different things.

Google's Conversion Optimizer focuses on achieving a CPA that you set yourself. In order to do that, Google looks at each keyword's historic conversion rate and then at your desired CPA to set the appropriate bid price. For example, if you have a keyword that historically converts at 1% and you set a desired CPA of $10, Google would take your desired CPA of $10 and divide that by the number of people needed to historically convert (100) in order to set the appropriate bid ($.10).

One of the problems with this method is that it ignores the position that your ad will receive. A bid price of $.10 may not be high enough to get your ad to appear on the first page of Google. Since 80% of internet users never go beyond the first page, your ad may not be seen often enough to convert as much as you would like.

The basic limitation of the new tool is that the Conversion Optimizer focuses on achieving one metric (CPA) in spite of others that are far more important, such as profit, sales, and other conversion types. At the end of the day, the most important metric to any business is profit. If you are managing your online advertising or using a "conversion optimizer" that focuses on any metric but profit, you may be doing more harm than good.

I worked with a client that had an ad agency that was focused on lowering his CPA. Week over week they showed this client how their CPA was dropping. The client thought this was great. Then, one day he dug into what was occurring. He looked at what his revenue was from his advertising in terms of total revenue, revenue per order, and profit per order. He realized that as his CPA got lower so did total revenue, revenue per order, and profit per order. He then realized that the goal of achieving a lower CPA did not achieve the goal of an increase in profit.

The Conversion Optimizer, along with most other tools, calculates the CPA in an illogical manner. The Conversion Optimizer credits a keyword with a sale when it is the last keyword clicked on prior to a purchase. This allocation model completely ignores the keywords that might have been clicked on prior to the last keyword. Marketers all agree that it generally takes more than one keyword to generate a sale. Given that is the case, why do the tools only give credit to the very last keyword that was clicked? If more than one keyword was clicked prior to a purchase, shouldn't all of the keywords involved get some form of credit? This is what I call the Purchase Path.

The Purchase Path looks at all of the keywords that led up to a sale and gives each keyword some form of credit. Therefore, each keyword gets some form of a CPA vs. just the very last keyword. This method gives a much more accurate picture of how your advertising is working and ensures that you are not turning off keywords that happen earlier in the buying cycle. If you do turn off keywords that typically occur at the beginning of the buying cycle, the keywords that typically occur at the end of the buying cycle will suffer. They will suffer because they will get fewer opportunities to close since the keywords that used to assist in their sales are no longer present.

FAQ:

Below you will find language taken directly from the FAQ Google posted on the Conversion Optimizer. I added several comments about each entry which show the limitation of the tool.

Which AdWords features don't work with the Conversion Optimizer?

- Position preference
- Budget optimizer
- Placement targeting
- Advanced ad scheduling
- Preferred cost bidding
- Separate content bids
- Multiple conversion types
- Cannot use AdWords Editor
- Cannot use AdWords API

Basically what Google is saying is that any feature that is used by a somewhat sophisticated advertiser cannot be used in conjunction with the Conversion Optimizer.

How should I structure my campaign?

Be sure your campaign contains ads for related products and services, and limit the number of ad groups in your campaign. Having fewer ad groups, each of which contains related ads, helps the Conversion Optimizer predict your conversion rate more accurately.

Also, be aware that the Conversion Optimizer requires conversion history in order to predict an accurate conversion rate. For this reason, it's best to modify existing campaigns rather than creating a new campaign.
Reading between the lines here again shows that this is not for sophisticated advertisers. Google recommends using this for small campaigns with only a few adgroups and a few keywords. It also cautions against creating new campaigns because the optimizer will not be able to optimize because there is no conversion data.

How do I get more conversions in my account?

To boost the conversions for one campaign, follow these tips. If you're interested in improving the overall conversion rate of your account, you may consider one or more of the following:

- Opt in to the Google content network.
- Add more keywords to your ad groups.
- Increase your maximum CPA bid.
- Change your ads or landing page to try to increase your CTR or conversion rate.

My experience to date is that the content network reaches buyers earlier in the buying cycle. Content network ads do not do a great job of getting conversions immediately after they are clicked upon. Adding more keywords could improve conversions as long as they are better-targeted.

It is true that if you raise your CPA or accept a lower conversion rate that you could achieve more conversions, but you must also make sure that the increased CPA still produces profit. Rewriting your ads to increase your CTR does not ensure more conversions, it ensures more clicks. The best recommendation that they give is to rework your landing page, which we have found to be effective for our clients.

Case Studies:

Just as I did with the FAQ, I pulled some quotes directly from the case study section of Google's site related to the Conversion Optimizer. As you will see, the quotes give great insight for whom the tool is best suited for. I added a few comments after each quote.

"With the Conversion Optimizer, we managed to get 600-plus conversions per day, instead of the usual 200. Also, I thought it wasn't possible to get below $0.60 CPA, but Conversion Optimizer managed to cut our costs down to $0.25 per conversion." - Moritz Daan, CEO Webgamic

First of all, Webgamic is not an eTailer. When I visit their site, I cannot tell what constitutes a conversion. It seems as if a "conversion" is just a visitor. Lastly, Google had to go all the way to the Netherlands to find this case study?!?!

"I have cut down my involvement with the content network from a very stressful mandatory daily session to a leisurely weekly session which I can skip if I want to. [Conversion Optimizer] algorithms take care of finding the [content network] gems and discarding the trash without my intervention. I really can't stress how powerful this is for a time-pressed small businessman." - Patrick McKenzie, CEO Bingo Card Creator

The key line in this quote is "I really can't stress how powerful this is for a time-pressed small businessman." If you are too time-pressed to pay enough attention to your AdWords campaigns, then this tool might do a better job than you can do for yourself. If you are not a small business, then this is not the tool for you.

"The main advantage of the Conversion Optimizer is that you don't have to bid keyword by keyword."- Paolo Mardegan, Business Director for Neo Network

Again, the big advantage that is pointed out here is the time savings, which clearly indicates whom this tool is for; small businesses that are pressed for time.

In closing, the Conversion Optimizer is not for serious advertisers. It is best suited for the small business that does not have the knowledge and/or time to dedicate to achieving the optimal performance. Lastly, an increase in conversions does not necessarily mean an increase in profit. Every business I have every worked with is driven by profit, not by conversions.
About the Author
Adam is the Chief Revenue Office at ClearSaleing. He is a seasoned sales manager starting insides sales teams at Google and Actuate Software. Adam holds a B.S.B.A. in Marketing from The Ohio State University. Learn more about ClearSaleing Online Marketing Solutions.
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