Today I will talk about how the number of applications, their price and conversion to target action depend on the bid in the advertisement. For example, let’s take the real statistics of an advertiser providing cleaning services.
Most ad systems operate on a private auction (first bid or second), and the advertiser places bids for the ad or ad group. The coverage depends to a greater extent on the rate – the number of users who saw the ad.
For example, the VKontakte team writes in the Help that “with a higher bid, the ad will win the auction more often, and more people will see it”.
Moreover, the social network takes into account the rating of users. when calculating cost and coverage, and at the very beginning after the launch of advertising, it tries to show ads to users with the lowest rating, that is, less “hot audience”.
PPC advertising is the same story. Ad position depends mostly on the bid, CTR and quality ratio in Yandex.Direct and Google Ads. And the coverage directly depends on the position. Thus, an advertiser placing his ad in the first position, in my experience, gets about twice as many clicks as in the second position, and, accordingly, more clicks and more requests from the site.
Why is it important?
In business, the price of the application, their quantity and quality are important. Let’s say you advertise in the first position, which means that you will receive the maximum reach and the maximum possible number of conversions. The second option is that you advertise in the second position with less reach from what is possible. Does this mean that you will receive slightly fewer applications for the same cost as with maximum reach? Not…
The lower the reach, the lower the advertising effectiveness
As you can see from Table 1, the smaller the position and reach, the fewer requests, clicks and conversions we get. But on the other hand, we receive applications 20% cheaper. The question is how profitable these applications are, given that there are 80% less of them.
To answer the question of how conversion, the number of applications and their cost depends on the reach or position, I took the data on advertising, unloaded it into Excel and made a pivot table 2. There are clicks, conversion, target price, number of conversions and positions, on which they were received.
Then, using the CORREL function in Excel, I built a table of correlations, where the data takes a value from −1 to 1. For example, −1 means a strong inverse correlation (relationship), and 1 means a strong direct relationship. The closer the value is to zero, the less the correlation between the indicators.
In the table, we see at the intersection of the position and the conversion price a value of -0.17, which indicates a very weak feedback: the lower the position (in my example, from the first to the second), the lower the cost of the conversion. Also, in my example, the number of clicks depends on the position, the correlation coefficient was −0.66, that is, the lower the ad is shown, the fewer clicks I get.
This means that the smaller the position or reach, the fewer applications I will receive, but they will be slightly cheaper (only by 20%). In my example, from Table 1, you can see that there are 5.5 times less orders for the second position than for the first. I took an advertisement for cleaning services, where an order of 800 rubles or 600 rubles does not make a fundamental difference, since the average check is about 4-5 thousand rubles. But the number of applications plays an important role. A campaign that brings fewer applications, albeit 20% cheaper, does not make any economic sense, office rent, employee salaries, etc. are more expensive.
Why is this happening?
The situation changes depending on the subject matter. In niches where there is a place for quick and impulsive purchases, for example, cleaning services, opening locks, calling a tow truck, position plays a decisive role, since a person immediately needs a reaction immediately, and he has little time to evaluate competitors’ proposals and choose. And for example, in topics with a long sales cycle, say, in construction and real estate sales, this dependence will be less, but still will be… Users are generally lazy on the internet and rarely see the second page of SERPs, they want ads that are easily accessible.
How to define and how to use?
The first step is to launch ads and collect data into a single table. The second step is to understand what is important for the client: a maximum of orders / targeted actions at the lowest possible price, or the price of these orders is more important to him. The third step is to collect data in a table and analyze how the price and the number of orders change depending on the position and coverage.
Understanding how pricing works in advertising systems significantly affects the final result in terms of applications and their cost.
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