Smart Pricing

Everything that Google has to say about Smart Pricing

There was a lot of discussion about the smart pricing issue in the comments section of the last post about adsense earnings. That is why I decided to go back and see if Google has got something to say about this particular topic. Turned out there is a lot of information available there. What follows is my own interpretation of the content available at the adsense blog. The links to relevant articles are provided at the end of the chapter.

What is smart pricing?

Strictly speaking, smart pricing is a situation where two publishers get different income even when an identical advertisement gets clicked on identical pages.

That means if you were getting 1$ for a click on a particular advertisement on a particular page, smart pricing will result in a lower earning from the same click. When smart pricing is applied, the advertiser is required to pay a lower amount for a click. The revenue is split between Google and the Publisher remains the same.

What gives rise to smart pricing?

Smart pricing is primarily a result of lower conversion of the traffic sent by your website to the site of the advertiser. Contrary to popular belief, smart pricing is NOT a result of lower click through rate. It will help to remember that smart pricing is effectively a way to protect the interest of advertisers and while low CTR is bad for publishers, it is not bad for advertisers.

There were no documents about how to determine if a particular page is giving rise to smart pricing. However most of the over aggressive methods to increase the accidental Click through like placing the advertisement too close to the text or formatting it like text itself, may result in smart pricing. Google explicitly mentions the trick of placing too close to the action area of games may result in increased CTR but will give rise to smart pricing.

Why does Google implement smart pricing?

As stated earlier Google does not change the revenue share while implementing smart pricing and hence Google looses out on revenue as well. Then why do they implement it? That is to solve an economic problem called lemon’s problem.

Basically in the absence of smart pricing, a reputable blog like FamousBloggers and a scraper site scraping its content will earn the same money. Since the advertiser knows that it will get 2 accidental clicks from the scraper site for every 1 valid lead coming from the reputed site, it will adjust the pricing accordingly which will be too low for the reputed blog and awesome for the scraper.

If you can take away one point from this article then it has to be that while you must optimize your adsense units for better visibility, you should stay away from optimizing it for accidental clicks to earn a better income from adsense in the long run.

  1. Insight into your earnings (Part II): How smart pricing fits in
  2. The facts about smart pricing
  3. Avoiding accidental clicks Pt. 1: Keeping the right distance
  4. The AdSense revenue share
  5. Mistakes that could reduce AdSense income

I am an Internet Entrepreneur and a professional Web Marketer, my blog WebTrafficROI is a web marketing blog aimed at people passionate about their Web Business and Blogging.


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{ 20 comments… add one }
  • Andrew Walsh June 16, 2011, 11:52 pm

    Nice explanation. I know this is an older post but I’ve just now been trying to figure out how smart pricing works. I came across a ton of posts saying it was dues to low CTR, but this makes much more sense. Great links at the end of the post as well.

  • Hans December 14, 2010, 1:46 pm

    I thought I knew what Smart Pricing was, but I didn’t realize it was based on the CTL (Click-To-Lead) ratio. That makes of course much more sense, since an advertiser only cares about its CTL ratio. The CTR is not that important because an advertiser only pays per click.

  • Lennart Heleander December 14, 2010, 8:31 am

    Hi ZK, welcome to famousbloggers as a guestblogger.

    The Principle is that the ad is paid by someone, a company. They want good result of the ad; if not, do they go somewhere else with the ad money, so it is in everybody’s interest to have a perfect system as possible.

  • Jayant December 14, 2010, 1:28 am

    Really good article. I was unaware about the smart pricing of AdSense. Good blogs who sends more conversion through Adsense ads should really deserve higher commission on clicks than the blogs who sends poor conversion.

    • RinatisDinoro December 14, 2010, 3:16 am

      I couldn’t agree more! Also, I think here ought to be a system to rank the blogs based on the “uniqueness” of the posts because these days you see 1000 posts about google adsense, keywords, CTR and so on…Google has to verify what posts are more relevant, not just more trafficked

  • Tinh December 13, 2010, 10:22 pm

    That is the hell for any adsense publishers but it still has solutions to take 🙂 I have been in this for along time and resolve it within one or two weeks only as usual

  • Nasrul Hanis December 13, 2010, 10:01 pm

    Well.. it’s might be a bad news for publishers but we have to accept it as both Google and advertisers have to get better deal.. and if advertisers lose a lot of capital just becasue of the accidental clicks.. Adsense will not be a preferrable platorm again and it will be worst for us!

    • ZK December 14, 2010, 2:38 am

      Google is working hard to ensure that they address fraud click issue, it’s in Google’s best interest to protect advertisers revenues.

  • Alex December 13, 2010, 5:04 pm

    Interesting I didn’t know about smart pricing going on. Although it makes sense one such feature to exist.
    I always taught that googles credits cpc by using the sum which the advertiser bid for every website.
    Like I said , interesting! Thank ZK!

  • Dana December 13, 2010, 4:31 pm

    Now, I get it why we need to make our readers aware that the AdSense is the AdSense. Thanks for the info.

    In other side, I think even though we blend the AdSense, as long as it direct to info that searched by our readers, it would still be okay.

  • TJ McDowell December 13, 2010, 3:31 pm

    The whole pay per click model definitely introduces some difficulty. I’ve actually been thinking about different pricing models for advertisers recently, and none of the methods are perfect. I have graphical Adsense running on my photography blog, and I’ve been getting a really low click through. I think it’s because the ads aren’t really all that relevant. Seriously, not everyone who is interested in photography is looking for a photography university.

    • ZK December 14, 2010, 2:42 am

      Also if you look at the advertisers side, there may not be a lot of advertisers spending money to advertise photography related niches and if they do the cost would be low..hence you have a low adsense revenue for the blog

      • TJ McDowell December 14, 2010, 8:27 am

        That’s definitely possible. I’ve also considered switching over to text ads. I know that local photographer ads go for pretty high CPC. I’m just hesitant to do that because anyone in our area reading my blog will be shown ads for our competitors.

  • Mike December 13, 2010, 2:25 pm

    Yeah, I also just knew about it. It’s a necessary step from Google to protect its advertisers and itself from clickfraud and non-targeted traffic, you know. Imagine if you operate a company like Google or you’re an advertiser, you’ll also act the same. You’ll want the money your spend for advertising is well worth it, not for some junk traffic that 3rd party websites send.

  • TrafficColeman December 13, 2010, 1:29 pm

    Its crazy the way some of these systems works and how they come up with these settings, but they people still have issue with them because they are so crazy to understand.

    Sometime its confusing to me..

    “Black Seo Guy “Signing Off”

  • Latief December 13, 2010, 12:52 pm

    Just knew about this bro 😉 Thanks for giving me this important information 😉

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