Adsense payment details

The claim to know all the ins and outs of the mechanisms sounds like a boast, for the payment system is one of the best-guarded secrets of AdSense™. The reason we've chosen this topic is not because we pretend to be “all-knowers”, but because it preoccupies us just as it does many others AdSense™ participants. So, let's put together what we know and what we've learned from others with what you've experienced and hope to answer some of your questions and bring more light into it.

Now, because of the secrecy around this topic, many think that AdSense™ retains A LOT of money, which seems to be not just so. Fact is that they are interested in keeping publishers happy too, for their role is important in this system, so...

You can get an idea about the amount AdSense™ gains and the percentage that goes to publishers if you take a peek at Google™ SEC filings for the first quarter of 2005 for example: from a total of $584 million, a percentage of 79% was paid to the publishers. But this is not relevant for particular cases, as the amounts are total and the percentage is calculated globally (undifferentiated per publisher, including also the “premium” publishers who get better rates).

Why This Secrecy

There are some possible reasonable explanations for this secrecy on payments:

• It's a program safety policy. Think a bit, if shares were disclosed and anyone would know how profitable some sites are, it would be easy for the competitors to “steal” them, offering higher rates.
• It would be hard to try to explain how their formula is personalized and customized according to each particular case. Besides, they can modify it whenever, however they think is appropriate without having to explain and ground their action.
• Knowing who makes what would be a bone of contention for publishers.

Calculation Parameters for AdSense™'s Payout Formula

Basically, what we do know for sure is that Google™ receives the money from the advertisers any time an impression is registered (CPM model) or a visitor clicks on an AdSense™ advertisment (PPC model). Then the revenue is shared with the publishers.

How it Works

• the cost of the click is established by the “smart pricing” system — this is the price advertisers pay;
• an undisclosed percentage is applied to this amount, that results into the shares for the publisher and for Google™.

AdSense™ Smart Pricing

Publisher's strategy should start from optimizing the factors taken into account by Google in the incipient stage: pricing. So, let us see how this “smart pricing” works and how can we, publishers, keep it to our advantage.

1. Pricing starts from the supply and demand ratio, settled in advertisers' bidding. (So far, not much we, as publishers, can do, except maybe for making your best keyword pick.) The price thus established is usually the highest possible, for there follow other factors that influence the CPC.
2. The result is then modified according to the click's conversion potential. That is, it is not enough to just click on an ad, its value is given by the analysis of the actions following the click — registration, newsletter sign-up for example — in a word, its likeliness to turn into business results.
3. Further, the price of a click is influenced also by content relevance, the type of site on which the ad appears. Keywords and theme that triggered the ad are also analyzed. The more content-relevant the ad, the higher the price for the click.

Publisher's Share Variables

It is logical that not all publishers be rewarded the same, but taking into account their potential as ROI holders. But we've already seen this as a factor analyzed through the “smart pricing” system.

Now, the shares of payment (between AdSense™ and publishers) are not calculated all alike, for not all publishers are “equal”; it is known, for example, that big web publishers get to negotiate the rates with Google. Why?

Authoritative, big publishers represent the pledge of high ROI, what makes them “most wanted” by advertisers. Thus, they will represent for Google™ also an important revenue source. Undoubtedly, they get to be stimulated to participate and stay in the program by means of a preferential treatment. That would lead to the deduction that smaller publishers are granted lesser shares.

Google™ states this explicitely in their Initial Public Offering Registration Statement (as filed with the Securities and Exchange Commission on April 29, 2004):

Typically, in situations where we pay a Google Network member more than the revenue we receive from our advertisers in connection with paid clicks on that Google Network member’s web site, we recognize the difference as cost of revenues. Due to intense competition for Google Network members and our limited ability to accurately forecast the number of paid clicks that will result, we expect that we will enter into AdSense agreements from time to time under which we will make payments to the Google Network member exceeding the revenue we recognize from the agreement. Cost of revenues also includes amortization of expenses related to purchased and licensed technologies. 

But it is not necessary to be an “authority” publisher, or a very big one to convert well your site into money. Smaller sites can have excellent potential in this regard. In an analysis to determine the sites' “monetization” rate, we may speak of an “extended” smart pricing applied by Google.

There are some criteria which are unofficially but almost certainly taken into account, which we chose to expose here for you to see also our perspective on the way Google AdSense™ pays:

• High traffic and impressions — High traffic is not strictly connected to the CPC.Targeted traffic is more valuable as it is likely to convert more. Thus, sites generating quality traffic (resulting in high CTR) will earn more. CTR seems to be taken into account by AdSense™ when choosing the sites for directing higher paying ads.
• Site size and age.
• High Page Rank (with all the parameters it involves — valuable content, relevancy of the inbound links, keyword relevancy).

After all, sites that would meet all of the above criteria are very likely to produce more, the higher their potential to raise a profit, the bigger Google™'s interest to keep them into AdSense™.