Ok, ready to become a Google AdWords Guru? (Or at least understand what the heck the expert you hired is talking about!) First, some important Adwords definitions…
Budget: The amount you're willing to spend on an ad campaign over a period of time.
Cost-per-click: The amount you choose to pay each time your ad is clicked
Keywords: Search words or phrases related to your business
Impressions: The appearance of your ad on a Google page.
Click-though Rate (CTR): Equals the number of clicks your ad receives divided by its number of impressions.
Region/country targeting: The geographic area where you'd like your ads to appear
Setting a higher budget will result in more ad impressions, and with more impressions you get more clicks. However, a higher budget does not affect your ad position.
Higher CPCs (i.e. you bid amount) help your ads appear among top positions in Google search results and earn higher click-through rates (CTR). With a higher CPC and resulting higher position, you get more clicks than lower CPC and lower positions. However, a higher CPC or bid amount does not affect your impressions.
Choosing specific keywords will result in more targeted ads with higher clickthrough rates. For example, an non-specific keyword like "buy car" will get a lower CTR than a more specific keyword like "buy new hybrid car." The non-specific keyword may get a large number of impressions, however fewer people will actually click the ad because the ad's position will probably be low and the ad will not appear to as many searchers.
Targeting smaller regions can result in more relevant ads with higher CTR. For example an ad targeting the region "Colorado" will have a lower CTR than an ad targeting "El Paso County & Colorado Springs."
Here is a quick synopsis of how Google Adwords Sponsored listings determines your ad placement:
Higher Budget – No affect on rank but increases CTR, increases impressions.
Higher CPC (Bids) – Increases ranking and CTR, no affect on impressions.
Specific keywords - Increases ranking and CTR, lowers impressions.
Smaller Regions - Increases ranking and CTR, lowers impressions.
Since your ultimate goal is to increase CTR i.e. get more clicks, the secret is to spend higher amounts on budgets and bids, while continuously focusing on more specific keywords or on more specific geographical regions. However, don't get too specific on the keywords because you don't want to lower your impressions to the point where no one is seeing your ad. The key to Google Adwords Sponsored listings success is therefore balance.