Search advertising is always evolving, from the disappearance of right-side ads to the introduction of larger, more prominent ads and advanced targeting methods.

With that in mind, and to celebrate our AdWords Performance Grader reaching over 1 million uses, I decided to analyze new data and understand how the AdWords ecosystem is changing. In a similar study back in 2013, we found that many small businesses were missing out on opportunities by making critical mistakes like low account activity and neglecting mobile optimization.

Let’s dive into the latest AdWords advertising statistics and see if things have improved or worsened. It’s important to note that this data is based on 30,000 reports from small and medium-sized businesses (spending between $10 and $5000 per month) who used our AdWords Performance Grader for the first time in the last six months. This data represents a global perspective.

1. Quality Score: More Crucial Than Ever

Since our 2013 analysis, impression-weighted Quality Scores have increased! The average for SMBs in 2016 sits around 6.5. Does this mean everyone’s creating exceptional ads?

Not really. It’s not that low Quality Score keywords vanished; they’re still around. However, these less relevant, low-QS keywords are now less likely to be shown to users.

This change is due to the rise of mobile search and the removal of right-side ads, resulting in fewer ad slots. Consequently, Google is more selective, prioritizing higher-quality ads. Since low-QS keywords struggle to get impressions, the overall average impression-weighted Quality Score appears higher. Key Takeaway: CTR, a major factor in Quality Score, is more critical than ever and continues to rise. Keywords with low Quality Scores (1-4) are unlikely to be seen, making their initial setup questionable.

2. Click-Through Rates (CTRs) in 2016: What’s Considered Good?

CTRs this year are higher than ever before.

Looking at account-wide CTRs for search, the average for SMBs across all positions is 3.23%. This represents a significant jump from 2.7% just a year ago. This increase is driven by several factors, the most significant being:

• AdWords is less likely to display low-quality, low-CTR ads, thus increasing the average account CTR.
• Larger, more noticeable ads (Expanded Text Ads) naturally attract more clicks. Internal tests show that switching to ETAs can increase CTR by up to 400%! Importantly, ad text optimization offers significant leverage. The top 10% of accounts (the unicorns) achieve over three times better results than the rest (the donkeys). Learn how by reading this guide.

3. Negative Keywords: An Often-Overlooked Optimization Tool

Let’s recap our findings:

1. The AdWords auction favors high Quality Score ads. Low-CTR ads are less visible.
2. QS is relative, comparing your CTR with similar ads based on factors like placement, device, and location.
3. Overall, CTRs are increasing. Therefore, maintaining your position requires a higher CTR, and surpassing it requires an even higher one. How can you achieve this? Our research revealed that underutilizing negative keywords is a major missed opportunity, offering significant impact for minimal effort.

Many businesses aren’t leveraging them effectively. A surprising 50% of accounts haven’t added a single negative keyword in the past month, leading to wasted ad spend. While Google claims that Negative Keywords don’t affect QS (calculated using exact-match keywords), this might not be entirely accurate (more in this case study, if you’re curious). Regardless of their impact on Quality Score, negative keywords are crucial for maximizing ROI. They eliminate irrelevant clicks (from users unlikely to convert) and redirect that budget to more effective campaigns. Regularly review your search query reports and mark low-converting or irrelevant keywords as negatives.

4. Never Forget the Ultimate Goal: Conversions

CTRs and QS are important, but ultimately, optimizing for these metrics should lead to increased conversions. Alarmingly, less than half of small business advertisers utilize conversion tracking.

This is concerning because these advertisers (representing millions of businesses) are missing out on the most valuable aspect of direct response marketing: tracking results and making data-driven adjustments. This is precisely why I believe Smart Goals are a valuable tool (especially for small businesses). Some form of conversion tracking, even if imperfect, is better than none at all.

5. Conversion Rates in 2016: What’s Considered Good?

Among the roughly 15,000 accounts with conversion tracking enabled, we observed minimal changes in average conversion rates and their distribution. The median conversion rate across all online businesses was 2.9%, aligning with our previous findings showing an average range of 2.5-3.5%. However, I suspect that the actual average conversion rate might be even lower if the remaining 54% of advertisers not tracking conversions were factored in. This is because businesses neglecting this crucial metric are likely making significant errors.

Several theories could explain this:

• Mobile traffic is converting indirectly, with increasingly complex paths involving cross-device conversions and calls, leading to conversion attribution challenges. This emphasizes the importance of call tracking.
• CRO is basically a ton of BS. Significantly, the top 10% of advertisers (the unicorns) continue to outperform the rest, achieving conversion rates three times higher (8% or more) than their counterparts (the donkeys). Aim for the stars!

Where Advertisers Should Focus in the Evolving AdWords Landscape

Based on these insights, advertisers and agencies should prioritize the following aspects for success in the changing AdWords environment:

• Exceptional ad performance: Google prioritizes strong performers. Poorly optimized, low-quality ads struggle to gain visibility, especially on mobile. Leverage every available feature, embrace early adoption, and craft compelling, emotionally resonant ads.
• Enhanced measurement: Implementing conversion tracking is crucial. Eliminate non-converting keywords. AdWords rewards businesses that track their efforts and allocate budget to ads delivering the highest value. We’ve recently introduced new features in the Grader to help you adapt to these changes:
• Expanded Text Ads insights: With the eventual phasing out of old text ads, adopting the new format is crucial. Early adoption yields the most significant benefits. The Grader now includes a section dedicated to your migration progress and provides tips for updating your ads quickly.

• Enhanced mobile data: We’ve added new and improved insights into your mobile performance (some data is customer-exclusive). Everyone will have access to new features like identifying your best and worst performing mobile ads and comparing CTRs across different devices. Obtain your free Grader report today and share your thoughts!