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

The only constant in search advertising is change. The loss of right side ads. More and much larger ads above the organic search results. Exciting new ad targeting options. And so much more.

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

Back in late 2013, we did a similar analysis and found that small businesses in particular were leaving a lot of opportunities (and money) on the table, by committing fatal errors like low account activity and failing to optimize for mobile search.

advertising data and statistics 2016

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

A quick note on the ad data sources: I looked at 30,000 reports from advertisers who ran WordStream’s AdWords Performance Grader for the first time in the last six months. I focused on small and medium-sized businesses with average spend between $10 and $5000 per month, with accounts world-wide.  

1. Quality Score Is More Important Than Ever

Since my analysis in 2013, impression-weighted Quality Scores are up! As of 2016, the average impression-weighted Quality Score for SMB’s is around 6.5. What does it mean? Has everyone gotten better at creating unicorn ads?

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

impression weighted quality score data

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

Key Takeaway: CTR (the biggest component of Quality Score) matters more than ever, and continues to trend up. If your keywords have very low Quality Scores (1-4) they’re just not as likely to ever be seen – as though you’re not even running an ad campaign to begin with (i.e. why bother setting them up in the first place?)

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

CTRs this year are trending higher than ever.

adwords advertising click through rate data

When I look at account-wide CTRs (average click-through rate for search) the average SMB account ad CTR across all positions is 3.23%. We’ve been tracking this number for a while, and that is up from 2.7% just a year earlier. That’s a big change!

There’s a lot of things going on but the biggest two factors behind this increase are:

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

One thing to point out here is that there’s tremendous leverage in ad text optimization. The top 10% of accounts (the unicorns) are doing more than 3X better than everyone else (the donkeys). How? Read this guide.

3. Negative Keywords Are Still a Missed Optimization Opportunity

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

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

Which means: You’re going to have to raise your CTR just to keep your current spots, and raise it even more to get ahead. How?

One of the biggest missed opportunities (in terms of big impact for little effort) that my research uncovered was a chronic underuse of negative keywords.

negative keyword stats

People aren’t using them as much as they should. Half of accounts didn’t add a single negative keyword in the last month. That’s a lot of wasted money.

Now, Google says Negative Keywords don’t impact QS (because it’s calculated based on exact-match keywords). But I’m not so sure about that (more in this case study, if you’re curious).

However, even if they don’t impact Quality Score, negative keywords are critical for high ROI because you’re eliminating wasteful spend (clicks from people who aren’t going to buy anything) and re-routing that money to more useful campaigns – all good things. Periodically review your search query reports and set low- or non-converting keywords as negatives.

4. Keep the End Goal in Mind: Conversions

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

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

conversion tracking data

This makes me sad. Because these advertisers (and we’re talking millions of advertisers, if you extrapolate these results to all the companies using AdWords out there) are kind of missing out of the best feature of direct response marketing: the ability to track results and make optimizations and adjustments based on your data.

It’s also why I’ve gone on record saying that Smart Goals aren’t that dumb (for many small businesses). Some form of conversion tracking is better than nothing.

5. What’s a Good Conversion Rate in 2016?

Of the approximately 15k accounts that did have conversion tracking on, we found little change in average conversion rates and conversion rate distributions.

Whatever you’re selling on the internet, the median conversion rate was 2.9%. Previous studies we’ve done have shown average conversion rates to be in the 2.5-3.5% range.

Honestly, I suspect it would be even lower if the 54% of advertisers not using conversion tracking turned conversion tracking on – because businesses that aren’t tracking conversions are probably making a lot of mistakes.

ad conversion rate stats and data

What do we make of this data? A couple of my theories include:

One important takeaway is that the top 10% of advertisers (unicorns) continue to crush everyone else with conversion rates 3X higher than the donkeys – they see conversion rates of 8% or more! Reach for the stars.

Where Businesses Need to Focus their Attentions in AdWords Right Now

Based on these insights, I think it’s clear where advertisers (and agencies) should be focusing when it comes to optimizing their campaigns for the changing AdWords landscape:

  • Excellent ad performance – Google is only showing strong performers these days. Low-quality, under-optimized ads won’t even get impressions (especially on mobile). Take advantage of every extra feature you can. Be an early adopter. Write compelling, emotional ads.
  • Better measurement – For the love of all that is decent and holy, start tracking conversions. Cut non-converting keywords out of your account. AdWords works incredibly well for businesses that take the time to measure the effects of what they’re doing, so they can funnel more money into the ads that drive the most business value.

We’ve just announced some new features in the Grader that can help you adapt to the new landscape. The new features include:

  • Expanded Text Ads insights – Pretty soon, the old text ads will be turned off completely. You NEED to start writing new ads in the new format, and the earlier the better because early adopters reap the most benefits. There’s a new section in the Grader that checks your current migration status and provides tips for getting your ads updated ASAP.

wordstream ad data

  • More mobile data – We’ve also added new and improved insights into your account’s mobile performance. (Some of this data is for customers only, but everyone will have access to new features including your best and worst mobile ads and how CTR compares on different devices.)

Get your free Grader report now! And let me know what you think!

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1 Million Reports Later, Some Exciting Updates to the AdWords Grader

We hit a pretty huge milestone this month: Over the past five years, our AdWords Performance Grader has delivered more than 1 MILLION free reports (over $9 billion in unique ad spend) and helped countless businesses and marketing agencies of all sizes and all over the world understand how their AdWords accounts are performing and where they’re missing opportunities.

In those five years, AdWords itself has changed a lot. We’re constantly evolving our software and tools to stay on top of changes in AdWords and provide more actionable insights for our users. Today, we’re announcing one of the biggest updates in AdWords Performance Grader history – new support for Expanded Text Ads and greatly enhanced mobile data and analysis, including new mobile insights throughout the Grader report.

new adwords grader

Change is a constant in the online advertising industry, but recently it has been focused around the mobile revolution. Mobile now accounts for over 50% (some say 60%!) of Google searches. To put that in context – more people buy mobile phones (and, we assume, conduct mobile searches) each year than buy toothbrushes. Given this reality, AdWords has shifted to a mobile-first approach. What this means is that we as businesses can no longer address desktop audiences first and leave mobile as an afterthought.

We also recognize the importance of Expanded Text Ads – Google is calling this its biggest change to AdWords in 16 years, and they aren’t kidding. This update, which roughly doubles the size of each ad, is a game-changer, and early adopters have the opportunity to really get ahead of the curve. (Read more about ETAs here).

new adwords grader features

To help you understand the impact of Expanded Text Ads on your account, we created a brand-new section specifically focused on the new ad type, as well as unlimited access to our Expanded Text Ads Guide + Cheatsheet.

Below, I’ll take you through the changes step-by-step and what you can expect to learn about your account performance when you get your free report.

*NEW* Expanded Text Ads Section

Expanded Text Ads are here, and that means you have some work ahead of you. Google and WordStream agree that to benefit from this change, simply “converting” your existing standard text ads into ETAs won’t cut it. ETAs require you to rewrite your copy and change your approach.

expanded text ads analysis

As the deadline approaches, it’s time to start thinking about the transition and how you’ll tackle it. The Grader will check up on your progress so far and includes a simple guide to creating successful ETAs. You can also learn more about what ETAs are and how you are doing with the ETAs you already have going.

In-Context Mobile Insights

We’ve discovered that it’s much easier to fail on mobilemobile CTR drops off a whopping 45% just between positions 1 and 2. And mobile CPC’s, formerly much cheaper than desktop clicks, are rising fast.

So let’s take a look at how the AdWords Performance Grader helps you understand and improve your mobile performance. The updated version of the Grader has new mobile insights sprinkled throughout four key sections: Click-Through Rate Optimization, Text Ad Optimization, Best Practices, and Mobile Advertising.

Click-Through Rate Optimization

Keywords and ads perform differently on mobile vs. desktop. To highlight your device-based challenges, we have segmented out both average position and CTR by mobile, desktop and overall (includes all device types). With this new level of information, you can optimize your ads for specific device types to get the most out of your PPC budget.

mobile adwords audit

Text Ad Optimization

Understanding ad performance is very important so you can replicate your successes and avoid tactics that aren’t working. Ads perform differently on different devices, so we now segment out your best, worst and average-performing ads by device. This way, you can see which ad copy is best for mobile vs. desktop. Users can then build on this device-specific success.

text ad optimization in adwords

Best Practices

We have added a new mobile best practice check. The check is designed to see if your account is using mobile bid modifiers (mobile device bidding) on any ad group. Modifying your bids for mobile is a great way to be smart about your budget and target mobile impressions for mobile-optimized ad groups.

adwords best practices check

Mobile Advertising

The Mobile Advertising section has been completely redesigned. This section helps you understand how your mobile budget and mobile ad optimization compare to others in your industry, with in-depth cost-per-click analysis to show how your mobile-specific bids stack up against the competition.

udpated adwords performance grader

NOTE: This section is available exclusively for WordStream customers. However, all the other mobile features above are available to all.

Here’s to the Next Million!

Check out the updated AdWords Performance Grader now – free as always and better than ever.

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