Give the advertiser the most bang for their buck!

That simple statement is the key to making good money with Adsense.

People have assumed that a low CTR is responsible for smart pricing. It isn't responsible for smart pricing but rather it can be a symptom of a poorly optimized page or poorly optimized traffic. Poor conversions are responsible for smart pricing - low CTR is just a side effect. There are many times though that a low CTR is just a matter of ad placement - your sidebar will have a poor CTR but your main ad block will have a high CTR. Both ad blocks still pay out a decent CPC regardless of number of clicks.

Let me use an example to explain this.

Let's compare two blogs writing about the same topic. Both use the same keywords.

Blog A is called everythingaboutwidgetsdotcom and Blog B is called bluewidgetsdotcom.

Blog A has several posts on the home page each with a snippet of text and a "more" tag - the "click here for further reading" link that will take the reader to the page with the full text.

Blog A has several snippet headers on the front page. Each snippet header is about a different widget.

"All about Blue Widgets"

"All about Green Widgets"

"All about Red Widgets"

The Adsense bot will read the page and conclude (correctly) that the page is about 1) Widgets in general, 2)Blue, Green and Red Widgets.

It will call for ads about widgets in general and ads for blue, green and red widgets.

Now Blog B only has 1 post on the home page. It is about Blue Widgets. In fact every post on the blog is about Blue widgets and nothing else.

The Adsense bot will give Blog B ads about Blue widgets.

On the face of it both blogs are optimized fairly well. Blog A is definitely optimized for widgets in general and Blog B is optimized for Blue widgets.

Now let's assume they know how to SEO and both blogs get ranked high in the serp's.

Blog A gets ranked for "Widgets".

Blog B gets ranked for "Blue widgets".

Google sends both blogs traffic. The traffic for Blog A is looking for "widgets" and some of the visitors are likely to click an Adsense ad. Some will click on the "widget" ad, some will click on "blue widgets", some on "green" and some on "red".

The Blog will get paid decent for those clicking on "widget" ads but not very well for the colored widget ads. Why? Because the traffic was looking for widgets and not "blue widgets" and will be less likely to convert for the advertisers of the colored widgets. Will the blog be smart priced? No - not likely, as the traffic will still convert OK - just not great. The blog will just make less than it could if it were better optimized. The blog will not get the best Adsense ads. It will get the cheaper CPC (cost per click) ads and the poorer performing ads.

Blog B on the other hand only gets Google traffic from people searching for "Blue Widgets" and all of its Adsense ads will be for "Blue Widgets" and everyone who clicks the ad will be more likely to convert and the blog will get the best payouts. The Blog will also get the best performing ads.

What are "The best performing ads"?

The best performing ads are not necessarily the highest paying ads.

Huh?

Very few people understand this so let me use another example. Would you prefer to get an ad that pays you $1 per click but only gets 10 clicks a day or would you rather have an ad that pays you $0.40 per click but gets 100 clicks a day?

Note: Google knows which ads get the most clicks - regardless of cost - some ads are just better written and draw people in better.

If you did the math then you will realize that the $0.40 per click ad is more desirable and is the "best performing ad".

If you are using Adsense then you need to understand how Adwords works.

The advertiser bids on keywords. If the advertiser's keyword is perfectly optimized for their landing page then Google will charge the Advertiser less for both the serp listing and for the content ad placements. If the advertiser's landing page is not well optimized for the keyword then they will have to pay more for the ads - sometimes a lot more. Let's use the term "make money online". If Advertiser A bids on this term and the landing page is perfectly optimized for "making money online" then they will be charged less than Advertiser B who's landing page is about "Forex" but he wants traffic looking for the term "make money online".

Google will charge the "Forex" advertiser a lot more money for the ad and place the ad on lots of crappy "make money online" blogs. Crappy in the sense that these blogs will not be perfectly optimized for "make money online" or "Forex" - most likely on blogs that have an affiliate page about Forex. The publisher won't convert much because the traffic clicked a make money ad and landed on a Forex page and the advertiser will pay a lot for this worthless click. The publisher will however get a good CPC out of the deal - just not many clicks because they have little traffic.