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GBP vs USD Ad Rank /Ad Spend Implications

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# 1
Visitor ✭ ✭ ✭

Hi all
Apologies that this is in the wrong place - there doesn’t seem to be a fitting place to post this.

This is a query about the implications of exchange rate changes on Ad Rank and Ad Spend.


I have a UK based client with a very large account. The account currency is set to USD, but it trades and competes in ad auctions solely in the UK, likely against other accounts set to GBP.


AdWords support have confirmed that it’s impossible to change the account to GBP.


With GBP’s decline (approximately 10%) after the EU referendum, the Ad Spend appears (at first glance) to have increased by 10%.

To be clear: There is no notable change in the account itself, but the same invoice now effectively costs around 10% more.


My client is very concerned that the impact on profitability could be significant, and has asked me to look into this, and possibly consider the radical step of setting up a new GBP account and closing down the USD one.


Because the account history is excellent due to constant optimisations, and conversion optimiser relies heavily on this, this change would be absolutely non-trivial, and could lead to a greater cost increase than any caused by weakness in Sterling against the Dollar.


However, we’d wondered if the effective increase in Ad Spend might actually be counterbalanced by Google’s own exchange rate moving in the opposite direction. 


e.g. the ad spend increases by 10%, but our competitor’s bids are also reduced by 10% as they are converted from GBP to USD before Ad Rank is calculated.


I’ve already read this previous post, and additional information:


https://www.en.advertisercommunity.com/t5/Billing/Which-is-better-Payment-currency-as-INR-or-USD/td-...


To convert currencies for ad ranking, we receive a daily feed from Citibank and use the average of the buy and sell prices to determine the exchange rate. This procedure was outlined accurately by AWA in a previous post:
"Google converts the bid value to the US Dollar and than determines the ad rank. Before entering the auction, the CPC's are converted into what we call micro-currency. Basically, we calculate currency down to 6 decimal points. Highly exact exchange rates are retrieved daily.”


My questions are:

1) Is this information up to date (that Google converts all CPCs to USD (at the average of the current Citibank buy and sell rates)?

i.e. when this USD account enters an ad auction against a GBP account, all bids are converted to USD for the purposes of calculating Ad Rank?


2) If this is true, would this have the effect of reducing the bid in the GBP account (relative to this USD account) by the exchange rate difference (as shown in the following example)?

e.g. Considering an identical keyword (and match type, etc), with the same Quality Score in this account (USD) and another account (GBP), with the only differences being the bid amount, the account currency, and the current exchange rate:


USD Account: Bid: $5.00
GBP Account: Bid: £3.50.


GBP Converted to USD at 1.44 = $5.04 (higher ad rank, winning the ad auction)

GBP Converted to USD at 1.32 = $4.62 (lower ad rank, losing the ad auction)


Or would it have a different impact?


If this is the case, and all other advertisers in the Ad Auction have GBP accounts, then wouldn't their bids being depressed by 10% have the same impact as bids in the USD account increasing by 10%?

In other words, to keep the account "as is", would the appropriate action be to reduce bids by (approximately) the change in the exchange rate?

I’ve emailed support with these questions as well, but wanted to throw it out to the community as it’s such an important question, and from reading the answers of the top contributors I think they may likely have some additional information or insights.


Any help specifically related to this will be extremely helpful.


Many thanks in advance.
Richard

1 Expert replyverified_user

Re: GBP vs USD Ad Rank /Ad Spend Implications

Top Contributor
# 2
Top Contributor

@Richard M;

The notion of micro currency still exists. Google does not reveal much information. I don't know if City is still the source, and I assume that the exchange rate is calculated more than once per day. The bottom line, I think the focus should be on optimizing  performance. If there was an advantage advertisers in a given location because of fluctuation a currency exchange rates,  it would be adjusted fast by Google to avoid any arbitrage.

Since the currency exchange rate is available  on the API, you can check with the API help forum if they have further info. Please update 

 

@Celebird might have additional info.

 

 

Moshe, AdWords Top Contributor , Twitter | Linkedin | Community Profile | Ad-Globe
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Re: GBP vs USD Ad Rank /Ad Spend Implications

Visitor ✭ ✭ ✭
# 3
Visitor ✭ ✭ ✭
Hi @MosheTLV,

Thanks for the quick reply.

My understanding is that there will be no arbitrage advantage from using a different currency.

But my concern is quite different; I’m assuming that there is *zero* arbitrage advantage, and am looking for information specifically to inform the decision of whether to start over from scratch with a new account given the circumstances described above.

Of course, optimising performance must be the focus. This is why I’m extremely concerned with the thought of restarting with a new account with no history.

To reiterate, my question is not about arbitrage advantage, but is specifically about the implications of how Ad Rank works with accounts across different currencies, and what my strategy should be.

So when my client is seriously concerned about Ad Spend suddenly increasing by 10% (completely unrelated to AdWords performance), I can’t respond by simply saying “more focus on optimising performance.”

Do you think the impact would be as in my example, or different?

And would reducing bids (to keep them at the same level as before relative to other GBP accounts) be the most effective way to keep the account “as is”?

Thanks again
Richard

Re: GBP vs USD Ad Rank /Ad Spend Implications

[ Edited ]
Top Contributor
# 4
Top Contributor

@Richard M;

Again, no benefit will come from closing an account and opening a new one, and loosing all (good) history performances,  every time there is a global currency "hysteria".  If I were to do it every time markets significantly vibrates due to an  economic crisis or market plunging I would have by now (since 2009), literally,  hundreds of accounts, closed and reopened... Smiley Surprised

Moshe, AdWords Top Contributor , Twitter | Linkedin | Community Profile | Ad-Globe
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Re: GBP vs USD Ad Rank /Ad Spend Implications

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# 5
Visitor ✭ ✭ ✭
Hi @MosheTLV,

Thanks. This is absolutely my view, but I need to be able to back it up with more than just assertion.

I’ve been asked to analyse the impact and specifically to:

- Understand how Ad Rank is impacted in the situation described.
- Decide on an appropriate response.

Given the situation described, do you think my example is correct, and the bids have effectively increased by around 10%?

And therefore that reducing these by 10% would have the same impact as if there had been no exchange rate shift?

I don’t want to take the (in my opinion massive) risk of starting from scratch with a new account, and I’m not looking to take advantage of non-existent arbitrage opportunities.

I’m simply looking to get some solid answers to my client’s concern which is specifically that a 10% increase in Ad Spend (totally unrelated to performance) directly reduces gross profit (as the level of conversions was optimal, and additional conversions cannot be handled presently).

Given that I’m not looking to increase conversions presently, does my example (of how Ad Rank works with accounts with different currencies entering the Ad Auction) seem to be correct?

And would it therefore make sense to look at reducing bids by the amount of the exchange rate fall in order to *maintain* current conversion volume and CPAs?

Re: GBP vs USD Ad Rank /Ad Spend Implications

Top Contributor
# 6
Top Contributor

@Richard M

I did not look at the numbers you provided since, as mentioned, Google doesn't reveal the method of calculation. Since no algorithm / formula available about the frequency of the data updated, my understanding / assumption  would be correct as any other.... Smiley Surprised

 

I disagree that the bids changed by 10%, due to devaluation of the GBP. I have been through so many financial crises during my years as an advertiser, and haven't seen any change in performance due to major currency fluctuations.  (Look for other  probable causes). And again, risking an account in a good standing (Quote: "the account history is excellent due to constant optimisations")  because of  a devaluation   of the GBP would be a mistake (IMHO). And what if the Brexit turns out to have  a good effect on the UK economy, and the GBP reverses course in a few months? You would again cancel the account and open a new one?

 

Have you also posted at the AdWords API help forum?

 

Let me  ping our UK based colleagues to chime in here.

@Jon_Gritton?

@Celebird

Moshe, AdWords Top Contributor , Twitter | Linkedin | Community Profile | Ad-Globe
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Re: GBP vs USD Ad Rank /Ad Spend Implications

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# 7
Visitor ✭ ✭ ✭
Hi @MosheTLV,

I just want to check that we’re on the same page here as you’d said you didn’t look at the example, and I think we're talking about very different things.

I don’t see why frequency of data uploaded or other information that Google hasn’t revealed would be relevant to my example, as it doesn’t rest on assumptions about any of those.

Given that it appears to be true that AdWords converts all currencies to USD before calculating Ad Rank, does my example not simply follow from that (that different Ad Ranks must be calculated depending on currency fluctuations when accounts in the same ad auction have different currencies)?

Like I say, there is *no* notable change in performance, so no need to look for other probable causes.

The change is simply that the same bill (in USD) now costs around 10% more because it is a UK based company with a USD AdWords account.

But, (as explained above), I believe this cuts both ways. This is why I’d anticipate this leading to an (unwanted) rise in conversions, and no change in CPAs (from an AdWords perspective, not from my client's) – unless the logic in my example is flawed.

But unless I’m wrong with either my understanding of how Ad Rank works, or the belief that AdWords converts bid prices to USD to calculate Ad Rank, I don’t see why my example wouldn’t hold true.

I understand you’re saying that you haven’t read my example, but I’m really not sure how I can make sure we’re talking about the same thing without asking if you would please mind quickly glancing over my example in question 2, and helping me understand which assumption I’m making is erroneous?

I haven’t posted on the API forum as the exact exchange rate they use is far less important then how Ad Rank is impacted.

Thanks again for all your help.

Re: GBP vs USD Ad Rank /Ad Spend Implications

[ Edited ]
Top Contributor
# 8
Top Contributor

@Richard M;

Again, with all respect to the argument, my view is that you are taking the wrong approach here.

I challenge your argument that  all other metrics are constant. QS is calculated  for every auction and  many variables can affect ad rank within the range of -+10% - this is quite normal.

In my view you would lose much more in performances due to loosing account's past history than the devolution of the GBP. (Which by now has  regained some of its strength).

 

 

Moshe, AdWords Top Contributor , Twitter | Linkedin | Community Profile | Ad-Globe
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Re: GBP vs USD Ad Rank /Ad Spend Implications

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# 9
Visitor ✭ ✭ ✭
Hi again @MosheTLV,

We're absolutely in agreement that the performance loss would almost certainly be much greater (with certain assumptions); but I need to be able to justify my thinking.

The pound’s subsequent regaining of strength doesn’t speak to what will happen later. This is just the latest fall; it’d already fallen significantly over the last year (it's about 16% down YOY).

With so many unknowns that could easily cause a greater devaluation, I’m not just looking at where it’s at now, but where it could be over the coming months and years.

I’m not sure what you mean by “all other metrics are content.” Do you mean constant?

I understand that of course there are many variables that can affect ad rank +/-10%.

But what I’m asking is – as a thought experiment, to isolate the specific variable of exchange rate – if you theoretically had two otherwise identical accounts, apart from the sole difference being the account currency (GBP vs USD), how does this impact Ad Rank when they enter the same ad auction?

We agree that if we double a bid, that impacts Ad Rank, right?

So if a shift in exchange rate caused the bid in the USD account to double (relative to the GBP account, when calculating Ad Rank) then why would that not have the same impact on Ad Rank?

Again, it’s just a thought experiment to focus on the question; I’m not saying that the change will be that great, or that identical accounts are possible, or that we shouldn't care about the other variables.

But a 10% or 20% change in cost is a game changer for profit, and if Article 50 is actually triggered I can imagine the situation getting far worse.

Thanks again.

Re: GBP vs USD Ad Rank /Ad Spend Implications

Top Contributor
# 10
Top Contributor

Hi @Richard M

 

>>"I’m not sure what you mean by “all other metrics are content.” Do you mean constant?" - Correct,. That was a typo of the auto  proofreading tool I use....

 

Again,  with  due respect to the arguments /claims you have raised,  your underline "axioms" are  not valid. Let me explain:

AdWords is not a mathematical modeling (e.g. A system which its behavior can be predicted  with a given set of mathematical equations). It is a multi variable statistical modeling. Hence, any attempt to keep "all (other) variables constant", to reduce the "problem" to a single variable mathematical model - will fail. And even in theory, it would be a (engineering and mathematical)   mistake  to try and solve a multi variable problem as if it were a single variable....

 

Is there any other reason for which you'd like to close the account? If not, I think I have provided enough arguments to  present to your client, against  the proposed  move. (i.e.  against closing an account and opening a new one every time a currency fluctuates.) 

 

Moshe, AdWords Top Contributor , Twitter | Linkedin | Community Profile | Ad-Globe
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