A member of my new combined forums posted a question regarding their AdSense earnings the other day. In summary, he said that he was only earning about 7 cents per click from AdSense for ads targeting keywords that the AdWords Keyword Tool says cost around $4.25USD per click. He didn't understand why.
This member is not alone! Many times I've heard the story of people who did the keyword research and found great "high paying" keywords only to earn pennies on the dollar compared to the AdWords estimates.
There are two primary reasons, in my experience, why this happens. They are:
REASON #1: AdWords Pricing Is NOT The Same As AdSense Pricing
The price you're seeing in the AdWords Keyword Tool is the estimated cost for a click on Google's search results (AdWords). But the price that advertisers are willing to pay for clicks via AdSense is typically much less (A click may be worth $4.25 on search but only $0.07 via AdSense). There are two reasons for this.
1. A visitor via a search query is highly targeted and typically far more ready to buy than a web site visitor.
Think about it. If somebody goes to Google and searches for "Texas life insurance quote" it's pretty obvious they're ready to buy some life insurance in the state of Texas!
But if somebody reads a news article about some life insurance scam happening in Texas, and the site owner uses AdSense to monetize the site, it's very possible that ads for life insurance in Texas will appear on the page. Out of curiosity the visitor clicks the link. Was that visitor worth $4.25? Probably not.
That example is fairly extreme, but you can see how a visitor on a web page is often far less primed to buy than a Google searcher entering clearly commercial keywords.
That's not the only reason AdSense values are less though. Unfortunately, there's a darker reason as well.
2. Click fraud drives the actual value of clicks from the AdSense network down.
There are huge networks of bogus "clickers" who are hoping to get a payday at the expense of AdWords advertisers. Although Google works hard to prevent such clicks from being charged to the advertiser, it's impossible to prevent them all. I've read estimates across the board, from 10% to 33% of AdSense clicks being fraudulent.
How big the problem really is is anybody's guess, but AdWords advertisers have learned to keep the price they pay via AdSense (the "content network") much lower than their Google search bids.
For advertisers it's just a matter of return on investment (ROI). Lower ROI for the advertiser means lower payouts per click for AdSense publishers, whether the lower ROI is due to the less-targeted nature of your traffic or due to the prevalence of fraud.
REASON #2: Google Has "SmartPriced" Your Site
The second reason you will sometimes see a dramatic difference in earnings per-click is that Google has "SmartPriced" your site. "Smart" Pricing is Google's way of estimating how valuable the click-throughs coming from your site are to advertisers. If they feel your clicks are very valuable, you'll earn a higher amount per click. This is determined (in part) by conversions tracked by the advertisers, and by other guestimations made by Google about the traffic they receive from you.
There are two schools of thought about "Smart" Pricing. The one school says it's a joke to try and determine how valuable traffic is without having access to 100% of the conversion data from advertisers (and the majority don't share that data with Google). The other side says that Google has to try and do something or advertisers will just go away and there will be no AdSense network at all. I tend to lean toward the first school of thought, but then I'm a much bigger AdSense publisher than I am an AdWords advertiser.
There's pretty much nothing you can do about the AdWords versus AdSense bid difference, but you have some control over "Smart" Pricing. Here are a couple of ways to keep Google's valuation of your site higher:
1. Don't send junk traffic to your site.
When I say "junk traffic" I mean traffic from sites that advertise "Get 1 million visitors for $10!" and from buying ads on low-quality networks that are full of fraud. A rule of thumb is this: if the traffic doesn't convert visitors into sales for a salesletter that's known to perform well with Google traffic or AdWords, it's junk traffic and should be not be used to earn from AdSense.
2. I've found that the more my traffic comes directly from Google for searches related to the advertisement, the higher my payout per click is.
For example, if your AdSense-monetized page is about electric motor scooters, and the ad that gets clicked is about electric motor scooters, and the traffic you're getting is from Google's search results for "electric motor scooters", then your payout will generally be a lot higher.
Google tracks this transaction from search to click, so they know when the clicks come from their own traffic. Google understandably trusts their own search traffic more than any other and so are willing to pay more for clicks from their own results. They assume it's "quality" and will convert better for the advertiser (which is probably true).
So try to focus on getting traffic from Google to generate revenue from AdSense. Don't be surprised if it takes Google a few weeks or even two months to figure out they need to increase your payout per click, though. "Smart" Pricing isn't an instantaneous thing.
Does that mean you can't earn good AdSense money from other traffic sources? Of course not! Just don't expect Google to value the clicks as highly and payout as much as clicks originating from their search engine. If what you're doing is working, keep at it, but the more your traffic comes from Google the closer your click-values will generally be to what the AdWords tool says.