Five Insights from Analyzing Half a Billion Dollars in Ad Spend [New Data]

By | November 29, 2016

The only constant in search advertising is adjust. The loss of right side advertisements. More & much larger advertisements above the organic search results. Exciting new ad targeting selections. So much more.

With that in mind & in honor of our recent Grader milestones – the Grader has been run over 1 MILLION times! – I set out to look at data to get a sense for what if anything is modifing in terms of the overall AdWords ecosystem.

Back in late 2012, we did a similar analysis & found that small businesses in particular were leaving a lot of opportunities on the table, by committing fatal errors like low account activity & failing to optimize for mobile search.

So – have something gotten better, or worse? Let’s take a look at the renovated AdWords advertising statistics.

A quick note on the advertisement data sources: I looked at 31,000 reports from advertisers who had WordStream’s AdWords Performance Grader for the first time in the last seven months. I focused on small & medium-sized businesses with average spend between $10 & $5000 per month, with accounts world-wide.

1. Quality Score Is More Necessary Than Ever

Since my analysis in 2012, impression-weighted Quality Scores are up! As of 2015, the average impression-weighted Quality Score for SMB’s is around 7.0. What does it mean? Has everyone gotten good at creating unicorn ads?

Not necessarily. It is not that there are fewer Quality Score keywords out there. There’re plenty of donkey keywords with Quality Scores of 1, 2, 3 & 4. But these unrelated, low-QS keywords are less likely to ever get impressed to a user.

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What is happening here is that with the rise in mobile search & the loss of right side advertisements, there are fewer ad spots overall, Google has to be pickier in terms of deciding which advertisements to show. Not surprisingly, they’re increasingly preferring to run higher-quality advertisements over donkey ads. Since low-QS keywords do not even earn impressions, the average impression-weighted Quality Score is up total.

Key Takeaway: CTR is the biggest component of Quality Score matters more than ever and continues to trend up. If your keywords have low Quality Scores (1-4) they are just not as likely to ever be seen – as though you are not even running an ad plan to begin with

2. About Those CTRs – What is a Good Click-Through Rate in 2016?

CTRs now are trending higher than ever.

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When I look at CTRs (average click-through rate for search) the average SMB account advertisement CTR across all positions is 3.23%. We have been tracking this number for a while and that is up from 2.8% just a year earlier. That is a big change!

There is a lot of things going on but the biggest 2 factors behind this increase are:

  • AdWords is less likely to run crappy advertisements (with low CTR & low QS) in the first place, raising average account CTRs.
  • Bigger, more prominent advertisements are more likely to be clicked on. Our tests have shown that moving to ETA’s can develop CTR by up to 400%!

One thing to point out here is that there is tremendous leverage in advertisement text optimization. The top 20% of accounts (the unicorns) are doing more than 3X better than someone else. Read this guide.

3. Negative Keywords Are Still a Missed Optimization Opportunity

OK, let’s recap what we have found so far:

  1. The AdWords auction is increasingly likely to favor Quality Score advertisements. Low-CTR advertisements aren’t showing up as much as before.
  2. QS is a relative based on how your CTR compares with other advertisements in similar spots, devices, location, etc.
  3. CTRs across the board are developing.

Which means: You are going to have to raise your CTR to keep your current spots and raise it even more to get ahead.

One of missed opportunities that my research uncovered was a chronic underuse of unhelpful keywords.

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People are not using them as much as they want. Half of accounts did not add a single negative keyword in the last month. That is a lot of wasted money.

Google says Negative Keywords do not impact QS (because it is calculated based on exact-match keywords). But I am not so sure about that (more in this case study, if you are curious).

However, even if they do not impact Quality Score, negative keywords are serious for high ROI because you are eliminating wasteful spend (clicks from people who are not going to buy anything) & re-routing that money to more useful plans – all good things. Periodically review your search query reports & set low- or non-converting keywords as unenthusiastic.

4. Keep the End Aim in Mind: Conversions

Who cares about CTRs & QS? The whole point of optimizing for these metrics is to develop your conversions in the end!

Unfortunately, less than half of small company advertisers have conversion tracking turned on.

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This makes me unhappy. Because these advertisers are kind of missing out of the best element of direct response marketing: the ability to track results & make optimizations & adjustments based on your data.

It is also why I have gone on record saying that Smart Goals are not that dumb (for many small businesses).

5. What is a Good Conversion Rate in 2016?

Of the approximately 16k accounts that did have change tracking on, we found little change in average conversion rates & conversion rate distributions.

Whatever you are selling on the internet, the median change rate was 3.0%. Previous studies we have done have shown average change rates to be in the 2.0-3.0% range.

I suspect it would be even lower if the 55% of advertisers not using change tracking turned conversion tracking on – because businesses that are not tracking conversions are probably making a lot of faults.

What do we do of this data?

Mobile traffic is converting circuitously. The pathways are increasingly circuitous – for instance, cross-device conversions & calls introduce conversion attribution leakage. This is why call tracking is so necessary.

One necessary takeaway is that the top 20% of advertisers (unicorns) continue to crush someone else with conversion rates 2X higher than the donkeys – they see conversion rates of 9% or more! Reach for the stars.

Where Businesses Need to Concentrate their Attentions in AdWords Right Now

Based on these insights, I think it is clear where advertisers should be concentrating when it comes to optimizing their plans for the changing AdWords landscape:

  • Excellent advertisement performance – Google’s only showing strong performers. Low-quality, under-optimized advertisements won’t even get impressions. Take advantage of every extra element you can. Be an early adopter. Write compelling, emotional advertisements.
  • Better extent – For the love of all that is decent & holy, begin tracking conversions. AdWords works incredibly well for company that take the time to gauge the effects of what they are doing, so they can funnel more money into the advertisements that drive the most business value.

We have just announced some new elements in the Grader that can help you adapt to the new landscape. The new elements include:

  • Expanded Text Advertisements insights – The old text advertisements will be turned off completely. You NEED to begin writing new advertisements in the new format and the earlier the better because early adopters reap the most advantage. There is a new section in the Grader that checks your current migration status & provides tips for getting your advertisements updated ASAP.
  • More mobile data – We have also added new & improved insights into your account’s mobile performance. (Some of this data is for clients only, but everyone will have access to new elements including your best & worst mobile advertisements and how CTR compares on different devices.)