Remember the Yellow Pages? It was a phone book in which advertisers paid money for ad space. People who needed something--a plumber, a pizza, a podiatrist--would open the Yellow Pages and search for the category they were interested in. Then they would peruse the listings and call the business that seemed most promising. When we all relied on the Yellow Pages to show us the way to the closest shoe repair shop, nearly every business had a listing or an ad--and consumers "let their fingers do the walking."

Today, of course, lots of us simply do a Google search to find what we need--yet not every business places an ad in this virtual Yellow Pages. So it is time for every business owner to understand the basics, and that's why I've brought in the experts. They're Howie Jacobson and Kristie McDonald, co-authors of Google AdWords for Dummies, and partners at the online marketing firm, Vitruvian. I asked them to give us the inside scoop on today's digital equivalent of the Yellow Pages.

Give us the quick lowdown on what AdWords looks like from the advertiser's point of view.
Advertisers write short ads, 130 characters maximum. They bid on "keywords," or the search terms that their prospects are typing into the Google search box. With every search, Google runs an auction and displays the ads that it predicts will bring in the most revenue. For example: let's say you have a business selling and servicing horse tack: saddles, bridles, reins, etc. You might bid on the following keywords:

Horse tack
Horse bridle
Horse blanket
Horse saddle

When a searcher types one of these search terms, or a close variation (horse blankets, or Western saddle, for example), your ad would appear on the search results page if you were one of the top 11 competitors for that particular auction. (Check out what those results would look like here.)

So does the AdWords "auction" work like a regular auction?
No, it doesn't. Normal auctions simply pay attention to the bids. Google invented a simple-yet-ingenious twist on the auction that catapulted AdWords past its early pay-per-click competitors. Here's the twist: the actual click price is a function of your maximum bid and the quality of your ad. Ads that generate more clicks get a volume discount, so to speak. So if you write ads that generate twice as many clicks than a competitor's ad, you can pay half as much per click and still come out on top of them in the auction.

This twist created a brilliant win-win-win scenario: Google wins because it sells advertising space for top dollar. Since Google only gets paid when someone clicks an ad, it's in its interest to favor the more "click-worthy" ads, not just the ads with the highest keyword bids. The advertiser wins because they don't have to pay for ads that don't work. And the searchers win because they get to see relevant advertising, as decided by them, not Google or the advertiser.

Is AdWords competitive for advertisers?
It most certainly is! Like the Yellow Pages; all your competitors are gathered in one spot, jumping up and down, saying, "Pick me! Pick me!" And since better ads are cheaper, your savvy competitors are constantly testing new ads to find the best ones.

The amount that a business can afford to pay for a click depends on how much that click is worth once the visitor lands on their website. So businesses that focus on improving their website-conversion rate (the percentage of visitors who become leads or customers), profit per sale, and number of repeat sales and referrals, almost always come out victorious in AdWords. And the fact that AdWords is highly competitive is good news; it means that advertisers are making money there. Remember, Google handles close to 4 billion searches per day. You would expect such a large and hungry traffic stream to attract fierce competition.

Let's talk about small business. How can AdWords help a small business?
We recommend AdWords to small businesses for two reasons: traffic, and testing. Many small businesses can use AdWords to generate all the leads and sales they need, at margins they are happy with. And AdWords is the world's easiest testing engine; you can test new ad text and landing pages and let Google tell you which ones work the best. Many start-ups have saved a lot of money by testing their offers and messaging with AdWords before jumping right into production and sales. Other businesses have doubled sales by improving an online sales letter using AdWords traffic.

 What's the catch?
Virtually any business can benefit from AdWords testing. Not every business will make money on the AdWords traffic, although you can't know without trying. But there’s a caveat: since AdWords is competitive and fairly complex, you need to be willing to invest time to learn the system. You also need to have enough spare cash to run conclusive tests.

How much cash are we talking?
Since every market has different keywords, and keywords all have different click prices, it's impossible to estimate costs without knowing something about your business. Google provides a free keyword tool that shows you estimated cost per click data for different keywords, as well as the number of searches per month. So, you can use these numbers as a starting point, but you'll need to buy some traffic to get actual cost per click data, as opposed to an estimated average.

And before you start, you should consider that it's useless to spend money on AdWords unless you have enough to first fund an adequate test. The average cost per click for horse blanket is $2.13. Let's say you have a new website devoted to selling your horse blankets, and you want to know how well it does. If you send 10 visitors to that page and none of them buy, should you give up? Of course not; 10 people is too small a sample size to infer any trends. You'd want a couple of hundred visitors, at least. And if you were testing two variations of the page, you'd want to send that many to each page.

So for a typical landing page split test with two variations, you’ll need enough money to buy 500 clicks. If your keyword is horse blanket, that's $1065. If you can't afford to spend that much without expecting the money back in sales, then you shouldn't be running that test.

 That's probably a little complicated for some mom-and-pop shops. What about outsourcing the use of AdWords?
AdWords is a complicated beast, as we've said, and it changes all the time. Unless you or a member of your team devotes several hours a week to keeping up with all the new rules, features, and strategies, you're going to get eaten up by the pros.

Outsourcing your AdWords advertising can have three benefits. First, you're probably much better at other aspects of your business than AdWords management. So letting go of the AdWords reins means you now have time to devote to the high-value work only you can do.

Second, the focus and expertise that a skilled AdWords account manager brings can mean the difference between mediocrity and success in this highly competitive medium. If you've got a horse worth racing, why not hire a great jockey?

Third, reputable agencies are assigned AdWords reps, who can be invaluable if an account ever runs into compliance problems (and since Google is notoriously vague on its terms of service and policies, most eventually do).



That said, you have to be careful about who you outsource to and what they do with the data. Since AdWords data is so valuable to your marketing and business strategy development, make sure the AdWords agency you choose understands marketing and not just the technical aspects of AdWords management. And make sure that they will share the data with you in an actionable form that you agree on.

So what will your first steps be? If you have a story to share, we'd love to hear it!

Dec 19, 2011