Click Through Rate (CTR) - the Most Overvalued AdWords KPI
Google AdWords contains a complex vortex of data that is very often underutilized and misinterpreted. The nuances that exist within every account are varied and numerous, and therefore less experienced marketers tend to fixate upon key performance indicators (KPIs) that are easy to understand as opposed to being exceptionally valuable.
The greatest offender in this regard is the click through rate (CTR). Click through rate has long been trumpeted by inexperienced marketers as a high-level indicator of success for campaigns, ad groups, ads, keywords, and even entire accounts as a whole. In reality, CTR forms a negligible piece of the overall performance puzzle and is one of the easiest KPIs to artificially manipulate upward or downward.
The latter part of that statement confuses some marketers. Why would anybody purposefully manipulate their CTR downward? Interestingly there is one common scenario where it actually benefits marketers to reduce their click through rates, thereby causing a chain reaction that simultaneously improves nearly every other important KPI. Let’s take a look at this common scenario.
Let’s imagine you have an AdWords campaign with a $100 daily budget. The CTR of this imaginary campaign stands at 5%, its average position is 1.5, and its average cost per click is $3.33 - therefore providing 33 total clicks per day. You convert 10% of your clicks into conversions for an average of 3.3 conversions per day. However, the campaign exists within a highly competitive vertical and generally exhausts its full $100 budget by 2:00 pm every day. This is not ideal, however additional advertising funds are simply not available to you. You are stuck with $100.
What should you do?
The most savvy option is to strategically lower your bids, consequently reducing your click through rate. The benefits of this maneuver are numerous. By lowering your bids (thereby reducing CTR) you simultaneously generate more total clicks, more total conversions and a lower average cost per click. Let's take a deeper look into this optimized scenario.
A chain reaction of events occurs when reducing your bids. First, the average position falls from 1.5 to 2.5. Expectedly, the click through rate then sinks from 5% to 3%. However, because bids have been reduced, the average cost per click falls from $3.33 to $2.50. Now, instead of producing 33 clicks per day, the same campaign produces 40 clicks per day. This consequently elevates average conversions from 3.3 per day to 4.0.
CTR is down, but the most important metrics (like conversions) are up. This is a trade nearly every AdWords professional would gladly make.
To summarize, the daily $100 spent remained exactly the same, but under the optimized scenario with reduced bids and reduced CTRs it consistently received more clicks and more conversions per day. Ask any marketer about their ultimate reason for advertising within AdWords and they will likely reply that it is to produce conversions or actionable goals. Their ultimate reason for being involved in AdWords has absolutely nothing to do with achieving certain CTR milestones. Therefore, the second scenario is a much better and much more efficiently optimized AdWords campaign despite having a drastically lower CTR.
It should be noted that this strategy only works (and works very well!) when operating within the confines of a campaign that consistently exhausts its daily budget. When applied to a campaign that fails to spend its daily allotment, the result is simply fewer clicks. Also, it is important to be strategic when lowering bids. While theoretically dropping from an average position of 1.5 to 2.5 still provides your ads with adequate visibility, it would not behoove a marketer to slash bids to the point where the average position falls from 1.5 to 5.5.
This not to say that CTR has no value whatsoever. It is especially useful for evaluating the quality of two ads side by side within the same ad group. However, at the high-level account view, it is by far the most frequently misunderstood KPI and should be readily sacrificed in order to improve more valuable metrics like total clicks and conversions.