What Google Adsense Has Said About Smart Pricing

(Summary of chapter 13, from book “Adsense Secret 4” by: Joel Comm)

On April, 2004 Google introduced Smart Pricing. Smart Pricing was a pretty smart move, especially 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. 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 advertiser’s 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.

This is what Google has officially told us 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 clickthrough rate.
Sending advertisers large numbers of clicks will not increase the bid price. (That doesn’t mean that CTR isn’t important at all for your revenues; it’s 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.