In the last year, Pay-Per-Click advertising (PPC) has become even more integral to a business’s search engine marketing (SEM) strategy. One reason is that organic search results on Google are getting pushed farther and farther down the page, replaced with Google’s paid advertising and other bells and whistles. Even with great organic search rankings, a potential customer might not see your listing before choosing a paid ad from one of your competitors.

So it’s important to continually optimize your AdWords campaigns and stay on top of Google’s best practices. Recently Google rolled out a new AdWords algorithm that changes the rules of the game again.

It’s About Ad Extensions

Previously, Google used its Ad Rank algorithm to decide where your AdWords ad would be placed. Ad Rank was based on a pretty simple formula: your max CPC bid (Cost-Per-Click, how much you’re willing to spend for ad placement) multiplied by your Quality Score (Google’s measure of your ad’s relevance and performance).

Now Google has included ad extensions in the mix – the more extensions you use, the better your chances of ranking higher. What are extensions? Basically, ad extensions are response mechanisms and reviews you can choose to add to your advertisement. A few common extensions are:

• Sitelinks – direct links to pages on your website you’d like customers to view
• Location – your business address
• Phone Number – a button customers can use to call you with a click
• Reviews – positive reviews from customers on Google+
• Seller Ratings – your business rating from Google+
• Apps – links to your mobile or tablet apps

Extensions are only available on Google Search, for now. And they cost nothing to use – unless someone clicks on an extension in your ad. Even then, Google only charges for up to two clicks per impression (when your ad is shown).

How Extensions Affect AdWords Rankings

Ads that incorporate extensions are now given a higher priority in search rankings. The use of extensions can be the tie-breaker between two ads with the same Ad Rank. Why? For one, Google wants to promote its own products. And two, Google knows extensions work, which means a better user experience for customers.

But extensions won’t automatically improve the ranking of an ad that performs poorly. Based on your Ad Rank, Google decides whether your ad is eligible to display extensions at all. Too low, and customers won’t see your extensions.

Once extensions come into play, they create a feedback loop that affects your CPC. They could result in lower CPCs because they’re creating more click-throughs and increasing your quality score. They could also raise your CPC if, for instance, extensions earn you a higher ranking and you face stiffer competition for those spots.

How to Use AdWords Extensions

Google’s goal seems to be making extensions as easy as possible to use. It has automated much of the process, but here’s what you need to know:

1. Consider what actions you want customers to take. You want to choose extensions that support the end goal of your AdWords campaign, not distract from it. Think about customers’ thought processes when they search for and view your ad. What extensions will they find most useful?
2. Add extensions to new campaigns – and old ones too. There is no cost, and you could have extensions up and running with a few clicks. Google even suggests the extensions it thinks will perform best with your campaign, so there’s no guesswork.
3. Let Google work its magic. Google doesn’t show every extension in every ad, every time. Instead, it decides which ones to display based on the search and context. A user on a mobile phone might see your ‘Call’ button, while a user at home on a laptop may see your Seller Rating instead.
4. Track performance. As with any marketing, follow the results of each campaign to see what’s working. Maybe your audience doesn’t much care about your app when they’re searching, but they check your Google+ reviews every time.

Click here to watch Google’s video explaining AdWords extensions.

Have you incorporated extensions into your AdWords campaigns? Tell us about your experience in the comments below.