The end of the year is the perfect time to stop and take a “big picture” look at just how much I’ve spent on search advertising, what that money has bought me, and what changes I should make in the new year. While I purchase advertising for my websites from many search engines, ad networks and individual websites, I decided to start by focusing on the top three search engines. MSN AdCenter didn’t open until mid-2006, but what results I do have from them are interesting.

For consistency, I only used data for ad campaigns for my TargetedVisitors and VisitorBoost sites since I advertise both on all three search engines. They make up more than 90% of my advertising spend.

Google, by far, provides the bulk of my paid traffic. This is in part because my keyword list is longest there, but also because they have more eyes and higher click-through rates. Take away Google’s content partners, including the AdSense program, and the click-through rates on their search ads alone is 8 times higher than Yahoo!’s.

I can see two main reasons for the much higher click-through rates on Google’s ads versus Yahoo!’s. First is use of the {KeyWord} token which allows me to display the searched phrase within my ad. I make use of it in about half my ad titles while using only the ad text to prequalify the visitor. The second reason is the editorial process at Yahoo!. The requirements for ad text are much stricter there, and often Yahoo! editors will rewrite my titles or text. I often end up with less catchy ad titles that I would expect to attract less clicks.

I currently track my advertising results with AdWatcher, although I’ll be replacing it in 2007 with something home-grown. Every ad I place uses a tracking URL that goes through my copy of AdWatcher, recording the click’s source and setting cookies to track if that click eventually results in a sale.

AdWatcher’s click counts for my advertising are shown above. In all cases, more clicks were recorded through the tracking URLs than the three companies charged me for. Some of these are simply duplicate clicks that they filter automatically. Google AdWords is the only service showing a large discrepancy — I was billed for 18,000 less clicks than I received. I attribute this in large part to fraud across their network, especially the AdSense publisher network. I see “adjustments” on my account crediting me part of my charges every month and their documentation shows that adjustments include refunds for click fraud.

Strictly on a per-click basis, Google was the cheapest search marketing I did this year. The average click cost me just $0.20 even though my max bids are nearly double that. My high click-through rates have resulted in high quality scores, which results in my ads showing in a higher position at a lower click-through rate than I’d pay otherwise. This is one of Google’s best qualities, and something Yahoo! is now only starting to copy with its release of the “Panama” ad ranking system.

Yahoo! Search Marketing, going back to when it was Overture and before that Goto.com has historically had high average CPCs. You’ll find some of the highest bids in the search marketing industry on Yahoo! searches. I’ve managed to pay only a penny per click higher than I do at Google, but do so at the expense of traffic. If I want to buy as many clicks from Yahoo! as I do from Google next year, I’ll have to sacrifice that CPC.

Surprisingly MSN came in at the highest average CPC. As a new service this year, I expected bids to start out lower than at Google or Yahoo!, but when I bid around $0.20 I wasn’t able to receive more than a handful of clicks per week. I had to raise my maximum CPCs significantly to get the couple hundred clicks I did.

The higher CPCs were offset by huge conversion rates with MSN. 13% of those clicks resulted in sales, beating out Google’s 4.3% and Yahoo!’s 2.9% by far. It looks to be well worth the extra effort and extra cost to getting traffic from MSN searches.

All of these conversion rates are lower limits. I receive too many more orders per day than AdWatcher tracks for them to all be sales from natural traffic, which means not all sales from advertising are being linked back to the original ad click. That happens when those visitors clear their cookies before making the purchase or make it from a different PC or browser.

That high conversion rate translated into a very low cost-per-sale for MSN AdCenter advertising. Google comes in second place due to the lowest CPC and average conversion rate. Yahoo! advertising costs me the most for each resulting sale, often resulting in very thin margins. I need to be careful not to over-spend when I try to increase my search traffic from that source.

The following charts I produced mainly for my own benefit and won’t have much meaning for anyone else, as they’re based on my average order size and don’t take into account the costs of filling those orders or running the business.

That wraps up my analysis of the search advertising programs at Google, Yahoo! and MSN for 2006. All three provided a good ROI for the year, with MSN AdCenter showing the most promise for even better results in 2007.