Reprinted with permission from the Lyris.com blog archives.
By: Dane Christensen

Well, pay-per-click (PPC) advertising on Google AdWords just got a little more complicated. With the recent release of Enhanced CPC bidding, Google has provided us with one more way to potentially optimize our return on investment (ROI) – and one more detail to factor into our decisions about how to configure our campaigns. All the ins and outs of campaign configuration, keyword quality, bid management, optimization, reporting, etc. were quite arcane already. Is adding another feature really worth the increase in complexity? I’ll summarize the situation and let you decide.

Enhanced CPC is apparently targeted toward those who want to optimize their ROI, but who don’t feel quite comfortable with Google Conversion Optimizer. To many, Conversion Optimizer feels too much like just handing over the reins to Google. And indeed, Conversion Optimizer does grant the Google algorithm wide latitude to work its magic in what is effectively a black box. While the ongoing internal mechanisms of Enhanced CPC will ultimately be just as obscure to the end user, in comparison it takes a more measured approach to making its adjustments. You could think of Enhanced CPC as “Conversion Optimizer Lite“.

While Conversion Optimizer focuses directly on your cost per acquisition (CPA) metric as the starting point for bid adjustments, Enhanced CPC, as the name suggests, focuses on the cost per click. This is a subtle distinction because the goal of both methods is to increase ROI, and they both ultimately accomplish this by making adjustments to your bids based on the same basic criteria. The actual logic used by both methods is, of course, hidden from our view. But there are some differences that can be identified.

Because Conversion Optimizer starts with the CPA, it requires enough conversion data within a campaign to have a representative sampling (at least 15 conversions per month) in order to make decisions. Enhanced CPC, on the other hand, can work with any number of conversions. (Though in both cases, the more conversion data you have the more effective the optimization will be). This reason alone might be the factor that causes some to use Enhanced CPC – if you don’t have enough conversion data, Conversion Optimizer isn’t even an option.

Probably the most significant difference is that Conversion Optimizer has more latitude to make aggressive changes to bids in pursuit of lower CPA. This is possible because of the statistical analysis based on those conversions it requires. Those aggressive adjustments can be disconcerting. Many people have seen their actual CPA increase significantly before dropping, and others have seen dramatic drops in traffic.

Enhanced CPC takes a more moderate approach. First, it will only operate on 50% of the auctions for which your ads are eligible. If it looks like one particular ad has a high probability of converting in a given auction based on past performance, it will increase the bid by as much as 30% over your Max CPC. If it determines that another ad has a lower percentage of converting, it will drop your bid (there is no floor on bid drops). If performance does improve, bid adjustments will be extended to 75% of the auctions in which you compete.

So in short, Conversion Optimizer is a more aggressive form of optimization that requires a minimum number of conversions and leans more heavily on CPA calculations, whereas Enhanced CPC is a more measured approach that relies on its own testing as opposed to historical CPA data.

There are a few other miscellaneous differences, too. For example, Enhanced CPC is compatible with some other advanced campaign settings such as advanced ad scheduling, position preference, and demographic bid multipliers. And while Conversion Optimizer is compatible with Google AdWords Editor, Enhanced CPC currently is not.

So is that all crystal clear? No?! Well, you’re not alone. The introduction of this new method has a lot of PPC professionals scratching their heads. Many are asking if we really need this new optimization method, or is it just adding more confusion to an already complicated space. Well, again, you can decide for yourself about that.

Meanwhile, here’s a simple chart that may help you decide which method is right for you.

Use Conversion Optimizer if:

  • You trust Google to optimize in your favor
  • You can wait patiently while your CPA figures go through some big changes
  • You have lots of conversions (at least 15 a month)
  • You use AdWords Editor on a regular basis (currently; support for Enhanced CPC is coming)

Use Enhanced CPC if: 

  • You have less trust in Google’s algorithms to get things right
  • You just want to take a more conservative approach
  • You don’t have enough conversion data
  • You don’t use AdWords Editor
  • You do use campaign settings such as advanced ad scheduling, position preference, and demographic bid multipliers

And if all this just sounds too confusing, you may want to consider simply hiring Lyris client services to handle the whole thing for you.