Knowledge bank

To maximize their earnings, Google and Facebook sell their ads in an auction. As an advertiser, this is a seemingly easy-to-understand, fair and transparent way to price your ads., but small details can greatly affect the effectiveness of advertising budgets. Hal Varian, who is a professor of micro-economics at Stanford and Chief Economist at Google, explains the mechanism behind Google’s “Generalized second price auction” in the video below.

As Hal Varian highlights in the video, Quality Score (video) is a very important component in how cheap you can buy your clicks. This is something that must be continuously worked on in the Ads account to maintain efficiency.

The other important component to achieving maximum effectiveness when it comes to achieving advertising goals is to place good bids.

The strategy for reaching optimal bids is, as Hal Varian himself describes it, that:

1. Estimate the expected value per click (per keyword / device / geo / audience, etc.)
2. Place bids that allow you to pay the right marginal cost per click (Incremental Cost per Click / ICC)
3. Repeat the process with feedback from previous bids and ad outcomes

* Facebook uses a slightly different auction than google (a Vickrey-Clarke-Groves auction), but from an advertiser’s perspective, there is no major difference in how one should behave.
We at Growth Hackers have been involved in building companies that have performed very well from a performance perspective, in the global market. Therefore, we are in a good position to recommend an approach that suits your situation in terms of which tools should be used.