What is AdSense Smart Pricing?

Smart Pricing is Google's term for protecting itself and AdSense advertisers.  In short, people who spend money to advertise with Google AdSense want as many people to click their ads as possible.  Measured as a Click Through Ratio (CTR), many AdSense advertisers work hard to change the words and graphics they use in their ads to encourage people to click.  Every time that a website visitor views an ad and that ad isn't clicked, the CTR decreases.

In April of 2004, Google introduced Smart Pricing to help AdSense advertisers combat poor CTR.  Here is Google's news archive announcing Smart Pricing:

https://www.google.com/intl/en_us/adwords/select/news/sa_mar04.html

Google constantly monitors the productivity of AdWords ads.  When your website has a high number of readers, but a low number of ad clickers, Google has two choices: Display fewer ads or decrease amount of money they pay you for displaying those ads.  In my experience, Google first tries to decrease the number of targeted ads.  If that doesn't work, then, they apply Smart Pricing and decrease the amount of money they pay you to display ads.

In the eyes of an advertiser, this is good.  While advertisers spend a lot of time thinking about CTR, they live and die in the amount of money that an ad makes.  As a result, if their CTR goes down but their overall income goes up, advertisers (and Google) are happy.

As a side note, it's important to realize that Click Through Rates do not influence the Return On Investment.  Google uses CTR to measure the quality of traffic and as a foundation to the formulas used to calculate ROI results such as eCPM (Effective Cost Per Thousand).

<b>How Does Smart Pricing Happen</b>

Smart Pricing is a simple function of traffic.  If your website visitors do not click on ads, Google will eventually lock your site into Smart Pricing.

Commonly, these websites find themselves locked into smart pricing when they start to gain traffic:

Forums
Article Websites
General Interest Websites
Blogs with high retention rates
Web based applications

Google starts every site out on a high paying, level playing field.  As traffic (website visitors) grow, Google constantly measures the quality of that traffic.  If people are clicking ads, Google leaves your ad pricing alone as you continue on your happy way.  However, when a community is engaged (as with forums) or when you purchase traffic (as with general interest websites) or even when you simply have regular visitors (as with blogs and web apps), people click on fewer ads.  Google sees this and applies Smart Pricing to decrease the amount of money you make per click and protect the ROI of their advertiser.

<b>How To Solve Google Smart Pricing</b>

Step 0:
Improve the CTR's that Google Advertisers receive.
You'll notice a that this is solution number 0.  That's because this is a very difficult, if not impossible thing to do.  This solution requires that you edit not only your content, but you need to edit the ads of the Google Ads customers and perhaps even the website of Google's customers.  This isn't a real solution, but it highlights the underlying Smart Pricing problem.

Step 1: Identify Your Best Content
Use Adsense Channels to find out what pages are generating clicks.  Here is more information about Google Channels: https://www.google.com/adsense/support/bin/answer.py?hl=en&answer=9868

Step 2: Remove All Google Ads From Your Site
Switch to another ad network for at least 30 days.  I suggest using this opportunity to check out a variety of other ad networks or perhaps even try to broker your own private deal with advertisers.  You have enough traffic for Google to care what you do, maybe you have enough for real advertisers to care too.

Step 3: Place Ads Only on Specific Pages
After you purge all of the Google Ads from your site and you wait for at least a full cycle to pass, then place Google Ads only (and this is important) only on the pages that you identified in step 1.  You want people to click on those Google ads and since you know which pages they were clicking on before, you increase your chances of Google recording CTR numbers with ads only on those pages.

Step 4: Work on Your Traffic
The last thing to do is to be consciously aware of your traffic.  If you have a website that targets a wide, general audience, ensure that you have enough outstanding, high quality niche content to offset global click through ratios.  In short, if you have a lot of crappy pages, you're going to have a lot of crappy traffic.  If you regularly buy traffic or use supplemental or purchased traffic for anything other than breaking out of a plateau, you're going to have crappy traffic.  Google will again protect itself from your crappy traffic and your time will be wasted if you do not improve your sources of traffic in this continual step.

Posted via web from Rob Brown

Source: http://robisit.blogspot.com/2010/02/what-is-adsense-smart-pricing.html