I've read a lot of theories about Smart Pricing, but it remains one of those mysterious 'black box" issues with Google.
Originally Posted by Will.Spencer
The only way that they could come close to calculating ROI is with conversion tracking, but that only really works if an advertiser has a sign-up form or a shopping cart and no other method (such as a phone number) for a user to contact them.
I don't know what percentage of advertisers use conversion tracking, but based on my experience running campaigns for 50+ advertisers, there are very few advertisers for which conversion tracking tells them anything meaningful. I've used conversion tracking successfully on a dating site, a few e-commerce sites, and a couple of lead generation sites, but that is it. Even with those sites, more often than not conversion tracking just confirms that AdWords advertising is not cost effective unless there is a lot of profit margin built into the product or service.
Conversion tracking tells an advertiser (and Google) the cost per acquisition, but Google would actually have to know an advertiser's profit on a product or service in order to calculate an actual ROI.
Perhaps they alter eCPM weekly to influence their own ROI.
Based upon the following 2004 article, it looks like Smart Pricing is adjusted to reflect the odds that a user who clicks on an ad will turn into a customer.
That would mean that the countries of origin of the users who clicked on the ads could influence eCPM. In other words, if the majority of your users who click on ads are in the USA and Europe, eCPM and Smart pricing goes up. If the majority of users are from China, Russia, etc., then eCPM goes down.
If this is true, then one could logically conclude that blocking traffic from all countries where users are not likely to make a purchase would raise eCPM.
Last edited by TopDogger; 5 April, 2010 at 22:05 PM.
"Democracy is two wolves and a lamb voting on what to have for lunch. Liberty is a well-armed lamb contesting the vote." -- Benjamin Franklin