What is Smart Pricing?

First, let me just say that Smart Pricing was a pretty smart move, especial for advertisers. The principle is simple: before smart pricing, advertisers paid the price they had bid for each click their ad received on a website, regardless of whether that click resulted in a sale. The result was that some advertisers were receiving large numbers of clicks for which they were paying large sums of money but were seeing only a low return on that investment (ROI). Not surprisingly, they were drifting away to other ad distributors, particularly Yahoo!, in the search for visitors who wouldn’t just click but buy too.

To improve advertisers ROI (and win them back from Yahoo!), Google lowered the price of ads on sites that tend to give advertisers few sales, even if they give them large numbers of clicks. To put it another way, the same ad can now cost different amounts when it appears on different sites. And of course, that same ad will pay publishers different amounts too. Before Smart Pricing, publishers had focused solely on attracting as many clicks as possible. With Smart Pricing, a site with a high CTR can still earn less than a site with a low CTR.

So how does Google measure an advertisers conversion rate and what can publishers do to increase their conversion rates to ensure their ad rates remain high?

This is where things get tricky. Google is playing its cards pretty close to its chest when it comes to the methods it uses to calculate Smart Pricing and even measure ROI.

What Google Has Said About Smart Pricing:

- The price of an ad is influenced by a number of different factors. Those factors can include: the bid price; the quality of the ad; competition from other ads in the same field; the location of the ad as part of a marketing campaign; “and other advertiser fluctuations.”

- The ad price is not affected by the click through rate. Sending advertisers large numbers of clicks will not increase the bid price. (That doesn’t mean that CTR isnt important at all for your revenues; its just not important in determining the amount you receive for the click.)

- Content Is King. Google makes it pretty clear that sites that will benefit most from AdSense are those that create compelling content for interested users. They also emphasize the importance of bringing targeted traffic to look at that content. Those are two different factors which together create a site with loyal, appreciative users. Just the sort of thing that every serious webmaster wants.

How does Google judge the quality of an ad?

- Smart Pricing is calculated across an AdSense account. So if you have a number of different sites covering a range of different topics and one of them delivers a low ROI, all of your ad prices may be lowered.

- Smart Pricing is evaluated weekly. If you believe that an ad is delivering a low ROI, you can remove it from your site and you should see higher ad prices within a week.

- Smart pricing is tracked with a 30-day cookie. Users dont have to convert immediately into a sale (or whatever will count as a conversion) for you to benefit. They can think about it for a month and you’ll still get the benefit.

- Image ads are affected by smart pricing. Few serious publishers use image ads except when they’re receiving CPM campaigns. Was this a reference to ads in low locations receiving lower rates?

- Prices may be reduced even below an advertisers minimum bid. So looking up the bid prices for targeted keywords wont help you very much; if your ROI is low, your rates could be lower than the minimum quoted.

- Conversions accounts are tracked by advertisers opting into AdWords Conversion Tracking. But we still don’t know what Google is tracking or how its making calculations with its results.

Strategies To Benefit From Smart Pricing

The challenge for publishers trying to keep their ad rates high is that there no way to know exactly how many of your clicks are converting into sales for your advertisers. You cant even tell what would count as a sale for the different advertisers you’re promoting. The best you can do is keep track of your clicks and your revenues, and make sure that they rise and fall at the same rates. If following your stats was always important, Smart Pricing has made it absolutely vital. Theres little point in spending hours trying to increase your CTR if the value of your clicks is dropping like a rock. So what should you do if you notice that your income is dropping but your

CTR rate remains the same?

The first thing you should do is protect yourself. Because one site with a low ROI can affect all the sites in your account, dividing your sites between different accounts would prevent all of your revenues falling if one site under performs. Officially, thats a breach of TOS, so you cant really do it But I don’t see why two different sites cant be owned by two spouses. If you own more than two sites though.

Next, if you suspect that one page has a low ROI, try removing the AdSense code from that page, wait a week and see if you can spot an improvement in your ad prices. If theres no improvement, replace the code and try taking the code from a different page. You want to find the page thats poisoning your earnings and keep AdSense ads off it until you can bring in the kind of traffic that suits your advertisers.

And thats where you’re most likely to find the under performing pages. The pages that are most likely to have the greatest conversion rates for advertisers are those that have the most loyal following. The closer the connection between your site and the interests of your visitors the more likely they are to click on your ads and buy when they click.

So its also a good idea to create niche sites that appeal to niche audiences, rather than general sites that bring in audiences interested in a bunch of different things. Those sorts of users will also only have a vague interest in some of the things on your site and could lower your conversion rate.

You might have a blog, for example, in which you discussed your interests in… oh, cats, computer, games and the movies of celebrities. That would bring in users with three different kinds of interests and three different kinds of ads. But a cat-loving user who clicks on an ad for celebrities DVDs is less likely to actually buy than a celebrity fan. Your conversion rate would drop and the value of every ad you promote would fall too.

But if you created three separate blogs, one for each of your interests, you would receive fewer false clicks, and a higher rate of conversion. Ultimately then, the ideal strategy is as always to create good content that attracts genuinely interested users.

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