Advertisers often ask how conversion rates vary with ad position in Google Adwords. Everyone is aware that higher positions tend to get more clicks, and therefore more conversions in total. You can gain more traffic to your landing pages and achieve more conversions by adjusting your bid for keywords with the same conversion rate. This is a quantity game because you do not see conversion rate increasing, which is an indicator of your ad quality. So the question of interest is how does the conversion rate (conversions/clicks) vary with position?
The answer is: conversion rates do not vary much with ad position. It seems to go against what we have observed from experiences. Hal Varian, Chief Economist at Google, explains the seemingly unexpected result.
Since Google ranks ads by bid times and quality, ads in higher positions tend to have higher quality and higher quality ads tend to have higher conversion rates. As a result, you may see a correlation between ad position and conversion rates just due to this ad quality effect. However, the real question needs to exclude the quality differences, and evaluate how the conversion rate for the same ad would change if it were displayed in a different position.
Another difficulty is that the position number reported by Google is an average over all auctions in which you participate. If you increase your bid, it is quite possible to see your average position move lower on the page! This is because when you increase your bid, your ad will appear in new auctions, and it will tend to come in at the bottom of those new auctions. This effect can be large enough to push your overall average position down. For example, your ad is in position two while bidding $2.00. You raise your bid to $3.00 and think you would get the first position, but actuality you may have opened up the floodgates to a whole new host of competitors—wealthier, more aggressive competitors who have already increased their bid to $4.00. Thus, your position two ad might sink down to number eight. So you may even observe a negative relationship between your ad position and conversion rate because of this competitions effect.
According to the statistical model Hal Varian uses to account for these effects, on average, there is very little variation in conversion rates by position for the same ad. For example, for pages where 11 ads are shown the conversion rate varies by less than 5% across positions. In other words, an ad that had a 1.0% conversion rate in the best position, would have about a 0.95% conversion rate in the worst position. What is more, ads on the top of the search result page have a conversion rate within ±2% of right-hand side positions.
The truth is, conversion rates do not vary much by position. Instead, they highly depend on the quality of our ads, which is a series combination of keyword relevance, ads relevance, content usefulness, website transparency and trustworthiness, and ease of navigation. Those elements are the driving factors that contribute your conversion rate and improve your ROI in online advertising.