Google AdWords is the largest provider in the “sponsored search” advertising genre, also known as “paid search,” or “pay-per-click.”  If you are using AdWords, then you know that there is often significant competition for popular keywords, which translates into higher costs for businesses competing for the best ad placements.  Advertisers generally bid to receive the most traffic to their sites, with the highest bids supposedly receiving the most “clicks,” although there are other factors involved beyond an advertiser’s bid price.

For categories with many competitors and high profits per new client, bids can often become impossibly high.  Ask any financial planner, attorney, or insurance agent about the cost per click in their business, and you will receive a groan (or worse), decrying the costs of sponsored search marketing.

Recently, Josh Steimle, in a Forbes article, pointed out the folly of measuring sponsored search by the number of clicks generated or the number of visitors sent to a web site.   Josh argues that it makes more sense to track conversions when measuring overall effectiveness of your AdWords campaign.  He’s right on target when he identifies conversions as the principal measure of an AdWords campaign.  A conversion is simply a desired outcome from a campaign.  If you want to register newsletter subscribers, then a registration counts is a conversion.  If your campaign’s purpose is to generate a lead, then completing a request for more information would constitute a conversion.

By tracking conversions instead of clicks, businesses will often discover that optimum conversion rates can often be generated with lower bids.  Why?  Some advertisers, particularly national brands with large advertising budgets, are concerned with the “branding” effect of their advertising.  They are accustomed to the costs of television and print advertising which yield relatively low conversion rates, but work to establish and maintain the brand name as a “household word.”  Most small businesses tend to use advertising for a more immediate response from current or new customers.

Small businesses that compete for the highest sponsored search positions may find this form of advertising too expensive for their budgets.  By focusing, however, on achieving the lowest investment required to generate an optimal conversion rate, small businesses often find the cost of sponsored search to be more reasonable, and a welcome addition to their arsenal of promotion tools.