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Roughly two thirds of your search ad conversions come from people who already visited your site, and that group consumes about one tenth of your ad spend. Larry Kim’s point is that most AdWords budgets fund the least productive traffic.
Bidding on generic unbranded keywords with a small budget rarely works. AdWords has been running for 16 years with millions of advertisers, so the obvious approach is where the competition is fiercest.
Larry founded WordStream, which builds PPC management software. He is a frequent contributor to Search Engine Land and Search Engine Journal.
This episode covers the margin threshold that determines whether AdWords can work at all, the sequence for launching a new store, how remarketing lists for search ads outperform standard keyword targeting, and why click through rate lowers your costs.
A note on timing: this is a 2017 conversation. AdWords is now Google Ads and its interface has changed considerably since.
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Table of Contents
Key takeaways
- Spend no more than one third of your profit margin acquiring a customer.
- Remarketing lists for search ads deliver about two thirds of conversions on a tenth of the spend.
- Build brand affinity through content before running unbranded keyword ads.
- Shoppers are two to three times more likely to click and convert on brands they recognize.
- Raising click through rate lowers cost per click across the whole account.
- Google’s suggested minimum bids run roughly five times higher than what you actually pay.
- Cut the worst 5% of keywords, since poor performers drag down the whole account score.
- Conversion rates above 8% to 10% mean your landing page matches intent.
Can every business make money with Google AdWords?
No. You need enough margin that customer acquisition stays under one third of your profit, which rules out thin-margin commodity products.
The arithmetic is unforgiving. Earning a dollar per sale means spending under 33 cents to acquire the buyer.
The rest covers operations. Fulfillment, overhead, and everything else has to come from the remaining margin.
Specialty items work best. Products that are hard to find locally, carry real margin, and generate repeat purchases.
Larry’s example is Amish gazebos. High price, genuinely specialized, and difficult to source elsewhere.
How do you start AdWords with a brand new store?
Build brand awareness through content before bidding on unbranded keywords. Larry calls generic keyword bidding on a new site a suicide mission.
You need an unfair advantage first. Competing head on with established advertisers at a dollar or two per click burns a small budget quickly.
Video works best for awareness. Showcase the product memorably to a well-defined target audience.
Facebook is the cheap channel for this. Ad prices there fall as engagement rises, so strong creative can reach a penny per click.
Then remarket to the audience you built. Filter for cart abandoners, long sessions, or favorable demographics rather than retargeting everyone.
A thousand qualifying sessions is roughly the floor. Below that, remarketing campaigns lack the volume to function.
Why does brand affinity affect ad performance?
Shoppers click and convert at two to three times the rate on brands they recognize. Buying decisions reflect existing preferences rather than starting fresh at the search box.
Ecommerce raises the trust requirement. Handing over card details and an address demands more confidence than a click.
Commodities are the exception. Someone who needs drone propeller blades immediately may not care about the seller.
That is why content precedes ads. The awareness campaign is what makes later ads affordable.
What are remarketing lists for search ads?
Keyword ads shown only to people who recently visited your site. Larry describes RLSA as a conversion detector.
The economics are striking. Roughly two thirds of conversions come from this group while consuming about one tenth of spend.
Generic search is the wasteful part. Ninety percent of the budget producing a third of the results.
In competitive niches, run RLSA exclusively. Redirect the remaining budget toward awareness channels that are cheaper and more scalable.
Bidding depends on your setup. Running RLSA alongside standard campaigns requires higher bids, and RLSA-only campaigns do not.
Similar audiences sit in between. Better than untargeted keywords and weaker than genuine site visitors, since they lack prior brand exposure.
How do you improve your Google Ads quality score?
Raise your click through rate, which drives roughly 80% of the calculation. Higher click through rates lower your cost per click across every keyword.
Write ads people want to click. Excitement at the ad stage carries through to purchase.
Sell more interesting products. Larry is blunt that a weak offering makes the whole effort feel like pushing a rock uphill.
Branded keywords lift the account. A small budget share at 60% click through rates raises the average that other campaigns inherit.
Cut the bottom 5%. Persistently poor keywords act like a cancer, affecting campaigns beyond themselves.
Avoid overpromising. Pushing the claim as far as it honestly goes is fine, and inventing offers is not.
How should you set your initial AdWords bids?
Bid high at first to accumulate history and quality score, then reduce. Google favors accounts that appear to be performing, which requires an initial push.
Suggested minimums are inflated. Larry puts them at roughly five times what you actually end up paying.
Costs fall as brand affinity grows. Higher click through rates maintain the same ad position at lower cost.
Steve’s own campaigns illustrate it. A suggested $1.75 minimum settled at about 30 cents per click.
What landing page should AdWords traffic go to?
Start with the product page and judge by conversion rate. Above 8% to 10% means intent matches the page well.
One or two percent signals a mismatch. That is when experimenting carries little downside.
Category pages suit broad searches. A term like “blue dresses” gives no indication which style someone wants.
Strong performance means leave it alone. Anything at 8% or above is worth protecting rather than testing.
What is the most common AdWords mistake?
Failing to act on the data the platform provides. Larry calls lack of activity the biggest problem in PPC.
The data supports business decisions beyond bidding. Strong return on certain product types suggests expanding that catalog.
Weak performance is information too. A 1% click through rate on a product says something about market demand.
Negative keywords are part of it. So is comparing return on ad spend across product categories.
How do you handle attribution across channels?
Treat AdWords conversion numbers skeptically and compare relative changes instead. AdWords sits at the bottom of the funnel and tends to overstate its contribution.
Absolute numbers mislead. The same measurement error applies across comparisons, so it cancels out.
Compare products against each other. Benchmarking product A against products B and C reveals real differences.
Track direction over time. Whether a metric rose or fell matters more than its stated value.
Should you spend on SEO or paid search?
Both, because paid search works best amplifying content that already performs organically. Without strong organic assets there is nothing worth promoting.
The two reinforce each other. Organic content builds the affinity that makes paid traffic convert.
Video deserves particular investment. Internet time has shifted to mobile, where video delivers better and stays memorable.
Larry’s own company followed this. WordStream moved heavily toward video ads and video landing pages.
Frequently asked questions
What profit margin do you need for Google Ads?
Enough that customer acquisition stays under one third of your profit per sale. Below that threshold there is nothing left to run the business on.
What is RLSA in Google Ads?
Remarketing lists for search ads, which show keyword ads only to recent site visitors. They deliver roughly two thirds of conversions on about a tenth of the spend.
How do you start Google Ads with a new ecommerce store?
Build awareness with content first, ideally video promoted cheaply on Facebook, then remarket to the filtered audience that content generated.
How do you lower your Google Ads cost per click?
Raise your click through rate, which drives about 80% of quality score. Branded keywords with high click through rates lift the whole account.
Are Google’s suggested bids accurate?
They run roughly five times higher than actual costs. Use them as a starting point and expect to pay considerably less.
What conversion rate should a product page get from ads?
Above 8% to 10% indicates good intent matching. One or two percent means the page or the keyword needs changing.
Should you delete underperforming keywords?
Cut the worst 5%. Persistently poor performers lower your account-level score, which raises costs on everything else.
Does brand recognition affect ad performance?
Substantially. Shoppers are two to three times more likely to click and convert on brands they already know, particularly for higher-consideration purchases.
