AdSense Tip #12: Filter low-paying ads

Time for another instalment of my Google AdSense Tips series. Be sure to read all of them! Today's topic is the AdSense competitive filter.

The competitive filter, which you access from your AdSense management console, is a mechanism that lets you list the URLs of AdWords advertisers whose ads you want to block. Normally you block an entire domain, but you can actually block a specific part or folder on a domain. The details are in the AdSense Filter Guide — be sure you read it to understand how to specify the URLs to filter. Currently, you're limited to entering 200 URLs for AdSense for content and another 200 for AdSense for search. While this sounds like a lot, it really isn't if you're using the filter for its secondary purpose: filtering low-paying ads.

Of course, the filter is called the “competitive ad filter” for a reason. It was created so that AdSense publishers could filter out ads from competitors. It cannot, unfortunately, be used to filter out ads by keyword or topic — you can only do that by adjusting the content of your pages to emphasize a different keyword/topic. But really, there's no way to keep anyone out short of filtering by the ad destination.

Most AdSense publishers, however, don't worry about competitors, but they would like to maximize the per-click payouts they get from the ads shown on their sites. This is where the competitive ad filter can help.

To understand how it works, we have to turn to the AdWords program, which is where the ads come from. For any given keyword/topic, Google ranks ads using this formula:

Ad Rank = CPC x QS

In this formula, CPC refers to the maximum cost-per-click the advertiser is willing to pay (this is not the CPC that the AdSense publisher gets) and QS is the quality score of the ad. This vague number (we don't have exact details about it) incorporates the CTR (clickthrough rate) of the ad, the historical performance of the ad, as well as other attributes such as how well the landing page relates to the keywords the advertiser is targeting.

Let's simplify things somewhat and go back to the original AdWords formula:

Ad rank = CPC x CTR

In other words, we're assuming that the other elements of the QS term equal 1, which isn't entirely unreasonable for similar ads from different advertisers who are targeting the same keyword. Or we could assume that the other elements of QS are miniscule enough that any variance is negligible to the overall rank calculation.

(Remember that ad rank is a fluid thing as new ads are constantly appearing in the ad pool and old ads are being taken out.)

Alright, let's say we have two ad units from different advertisers targeting the same keyword. Call them MFA and CIK. There is a significant different in the CPC between the two: MFA bids $0.10 per click, CIK bids $0.50 per click. Say MFA's ad is better and attracts more clickthroughs, so that its CTR stands at a healthy 2.5%. So the ranking for MFA is this:

MFA rank = 0.10 x 0.025 = 0.0025

Now CIK's ad isn't as good and has a lower CTR of 0.5%. Even though it has a higher CPC, its rank is the same as MFA's:

CIK rank = 0.50 x 0.005 = 0.0025

So in any given ad auction for that keyword, both ads are going to rank identically, even though there's a big variance in the CPC. In fact, if the MFA ad unit get a slight boost in its CTR or the CIK ad gets a slight decrease, the MFA ad will outrank the CIK ad and will be shown more often.

That's all fine and dandy, but how does this help you as an AdSense publisher? After all, the ad selection algorithm will show the ads more likely to be clicked, which should make you more money over the longer term, right?

Maybe. Or maybe not. Let's say 1000 people visit a given page. And let's say that the publisher's portion of the CPC is half the maximum CPC bid — in other words, we're ignoring things like smart pricing that actually lower the effective CPC. So a click on MFA gives the publisher $0.05, a click on CIK gives them $0.25. Assuming the CTRs used in the ad ranking algorithm hold, both ads make the publisher the same amount of money:

MFA: 0.05 * 0.025 * 1000 = $1.25
CIK: 0.25 * 0.005 * 1000 = $1.25

But what if, for some reason, the CIK ad has a higher effective CTR for that particular page. For example, say the CTK ad is particularly appealing to page visitors and ends up having a 1.5% effective CTR instead of a 0.5% average CTR. Here's how much money it would make:

CIK: 0.25 * 0.015 * 1000 = $3.75

But if there are a lot of MFA ads, their higher ad rank based on the average CTR values will “push out” the CIK ads. Which means less money for the publisher.

Even if the ad rankings take the effective CTR into account, though, there's another way publishers can lose money: by losing their visitors to low-paying ads. Instead of staying on your site and exploring other pages and then hopefully clicking on a higher-paying ad (or an affiliate link or some other way to make money), they're gone. Sure, you're being paid, but is $0.01 (which is what some AdSense publishers end up getting per click for the low-paying ads) worth losing the visitor?

This is why filtering low-paying ads may make sense. I say may because every site is different. Maybe you're getting so much traffic that a few cents per click is enough to make you happy. Maybe your whole business model caters specifically to those low-paying ads, especially in highly competitive fields where the “real” ads are reserved for Google's search engine results pages. And the formulas we've looked at are extremely simplified and inaccurate. Filtering low-paying ads could reduce your earnings, not increase them.

But how will you know until you've tried it?

Eric Giguere is the contextual advertising expert who wrote Make Easy Money with Google and Uncommon AdSense. You can read this blog by mail if it's more convenient for you, just send a blank email to memwg-blog@aweber.com to subscribe.

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