A very interesting statement about PPC adtext positions has come out of Google HQ. Their chief economist Hal Varian has been researching what impact the position in the search listings has on the conversion rate of the traffic.

It seems this hasn’t been the easiest thing to calculate:

This is a tricky question for several reasons. Since Google ranks ads by bid x ad quality, ads in higher positions tend to have higher quality and higher quality ads tend to have higher conversion rates. Thus you may see a correlation between auction position and conversion rates just due to this ad quality effect. However, the real question is how the conversion rate for the same ad would change if it were displayed in a different position.

Another difficulty is that the average position number reported by Google is that it is an average over all auctions in which you participate. If you increase your bid, it is quite possible to see your average position move lower on the page! The reason is that when you increase your bid, your ad will appear in new auctions, and it will tend to come in at the bottom of those new auctions. This effect can be large enough to push your overall average position down.

(if you want to see more on this issue it’s worth checking out the Google FAQ about it).

Hal explains the findings as follows:

We have used a statistical model to account for these effects and found that, on average, there is very little variation in conversion rates by position for the same ad. For example, for pages where 11 ads are shown the conversion rate varies by less than 5% across positions. In other words, an ad that had a 1.0% conversion rate in the best position, would have about a 0.95% conversion rate in the worst position, on average. Ads above the search results have a conversion rate within ±2% of right-hand side positions.

So, should we all now start bidding for first position because if the conversion rate is going to be the same then we’ll get more business? The simple answer is no. Whilst you may get the same conversion rate and therefore greater sales it doesn’t take into account the cost of those clicks. So test test test any bid increases.

Also, take note of Hal’s point about the quality score – shows how important it is to increase your ROI. If your position is a simple multiplication of click cost and quality score, improving the quality score should improve your position without any cost increase. Therefore improving your ROI too.

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