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The first one is quite simple, if you select "show better performing ads more" or ad optimize or whatever it's called, are Google showing the best ads more of the time in terms of CTR or conversion % or a mixture of the two? I can't find a clear answer to this.
Secondly and a more difficult question. I've added multiple ads in some adgroups to try lots of different copy approaches and made 2 versions of each (headline A versus headline B) - I'm just not sure which approach to take for testing. Show all ads evenly and then split test A and B or "show better performing ads" and then wait for patterns to emerge. Would love to hear peoples ideas and experiences.
Couldn't have come at a better time for me, as I have also just got the ability to test ad's through to transaction back too!
Google looks only at the "effective CPM" that it earns from advertising, so it will never look at your conversion rate or profitability. Instead, it looks only at the CTR (Click-Through Rate) in deciding which of several ads to display.
I'm not sure whether Google's algorithms make any effort to identify any "cross-effects" of ad variations; that is, if you have two ad variations and your main competitor also has two ad variations, and the performance of your ads is different depending on which of the competitor's ads are shown, I don't know whether Google attempts to determine which of the two ad pairs work best together.
But it's always important to recognize that the algorithms behind Google AdWords look almost exclusively at the "revenue generated per pageview." (Google does have some overriding "relevancy" algorithms that may block a more-profitable ad from being shown if it would make the search results appear significantly less relevant to a consumer.)
Google does not use your conversion or ROI/ROAS data when choosing which ads to display.
Suppose you have two ads:
(1) one ad draws a 1.0% CTR with a 10% conversion rate (10 conversions per 10,000 adviews),
(2) the second ad draws a 1.2% CTR with a 1% conversion rate (1.2 conversions per 10,000 adviews).
Google will show the first ad more often, even though the second ad is MUCH more profitable for your company. It's up to you to monitor ad performance and disable the first ad, in this example.
OT: I use a spreadsheet that someone told me about on www, basically it takes into clicks/imps/conversions to give you a confidence interval. If you search for,
Statistical Analysis Calculator filetype:xls
it should be the first result. I use this to figure out if I need to collect more data or not.
Think about it this way, if 1-2 more people came to your site and converted, would it totally change the calculations?
If yes, I just can't consider that significant enough. 2 visits shouldn't completely change your confidence levels.