from: https://adwords.google.com/support/aw/bin/static.py?page=tips.html

With Google AdWords, it’s all about results. Optimization means taking steps to get the results you want by improving the quality and performance of your account – without raising costs. We’ve designed these optimization strategies to help you achieve success with your advertising campaigns.

1. Identify your advertising goals.
2. Organize your account for maximum effectiveness.
3. Choose relevant keywords and placements.
4. Create straightforward, targeted ads.
5. Optimize your website for conversions.
6. Track your account performance.
7. Test and modify your campaigns to get the results you want.

Your optimization strategy depends on the objectives that you define for your campaigns.

With specific goals in mind, you can work strategically to achieve your objectives, track your performance, and make the modifications necessary to get the results you want. Here are some typical objectives and sample focus areas for each goal:

“I want to get more clicks.”
Focus on keywords and placements. Increase your ad exposure by adding keywords and site placements to your ad groups.

“I want to increase my clickthrough rate (CTR).”
Focus on ad quality. Attract more clicks by refining your ads, and eliminate extra impressions by choosing highly targeted keywords and placements and using negative keywords.

“I want to improve my return on investment (ROI).”
First, focus on your ads and your keywords and placements to attract the right audience. Then focus on your website. Be sure your landing page and site are set up to let users find what your ad offers.

A well-structured account is easy to manage and allows you to effectively target your audience.

Organize your campaigns by topic.
Create separate campaigns for each of your product lines, resources, or brands. This helps you monitor your advertising more easily and make the necessary adjustments to improve your campaign performance. Ask yourself what you want to achieve with each campaign. Then structure your campaign based on this goal. View a diagram and learn more about the structure of your account.

Target the right languages and locations.
For each campaign, you can choose to target your ads to particular languages and locations (plus choose your budget and other settings). Be sure to target only the languages and locations that are relevant for your business. For example, if you ship your products to locations within a certain distance of your business, target the country, territory, region, or city related to the area, instead of to ‘All Countries.’

Create highly specific ad groups.
As with your campaigns, each ad group should center on a single product or service to ensure your ads reach the most qualified users. Build a list of keywords or placements, then separate them into related ad groups. Create ads that pertain directly to that list. For example, if you sell mp3 players, and you’ve organized your campaigns by brand, create multiple ad groups based on the models of each brand.

Avoid duplicate keywords across ad groups.
Google shows only one ad per advertiser on a particular keyword, so there’s no need to include duplicate keywords in different ad groups or campaigns. Identical keywords compete against each other, and the better-performing keyword triggers your ad.

Review example campaigns advertising a single product/service and multiple products/services.

The more relevant your keywords and placements are to your goals, the more easily you can reach your potential customers.

Choose your keywords carefully.
Include specific keywords that directly relate to the specific theme of your ad group and landing page. For optimal ad visibility, include relevant keyword variations, along with singular and plural versions. If applicable, consider using colloquial terms, alternate spellings, synonyms, and product or serial numbers. The keyword tool can help generate lists of possible keywords.

Take advantage of keyword matching options.
With some keywords, you’ll get more ad impressions; with others, you’ll get fewer impressions but potentially more clicks. By strategically using keyword matching options, you can reach the most appropriate prospects, potentially reduce your actual CPC or CPM, and increase your ROI. Use broad match to capture relevant traffic on variations of your keyword, such as longer queries, plurals, synonyms, or different spellings.

Use placement-targeted campaigns.
Placements are locations on the Google Content Network where your ad can appear. With placement-targeting, you can choose individual spots on the Content Network to show your ads (called managed placements) or simply let Google’s proven ad targeting display your ads on the website pages most relevant to your products and services (automatic placements). We’ll only look at your managed placements when searching for relevant places to display your ads. Unlike automatic placements, keywords aren’t required.

When using managed placements, you can do the following to make sure your ads are relevantly targeted to the right content on the right sites:

• Exclude placements if you don’t want your ads to appear on them at all.
• Manage individual or default bids to adjust how competitive you want to be on certain placements.
• Add keywords and negative keywords to refine where your ads run.
• See URL-level details on the placements where your ads appear and quickly make data-driven decisions to improve your ad group’s performance.

Choose your placements carefully.
Include websites and other placements that are relevant to your products or services, and be sure to choose enough of them. The more relevant the placements you target, the better the chances your ad will show. We provide four ways to choose placements: you can list URLs, describe topics, browse topics, or select demographics. To create the most effective list, we strongly suggest using all four methods.

When using the Placement Tool to find and select websites, pay attention to the Ad Formats column in the list of available placements. If you run only certain kinds of formats — for instance, image ads only, or text and video ads only — make sure you select placements that run the kinds of formats you have to offer.

The content of your ads should capture users’ attention and set your business apart.

Include keywords in your ad text (for keyword-targeted ads).
Include your keywords in your ad text (especially the title) to show users that your ad relates to their search. If your ad shows when a user searches on a keyword in your ad group, the keyword will appear in bold in your ad text. Also, users tend to search for products and services, so avoid using your company name in the ad title unless your goal is brand/company name recognition.

Create simple, enticing ads.
What makes your product or service stand out from your competitors? Highlight these key differentiating points in your ad. Be sure to describe any unique features or promotions you offer.

Use a strong call-to-action.
Your ad should convey a call-to-action along with the benefits of your product or service. A call-to-action encourages users to click on your ad and ensures they understand exactly what you expect them to do when they reach your landing page. Some call-to-action phrases are Buy, Sell, Order, Browse, Sign up, and Get a Quote.

Test multiple ads in each ad group.
Experiment with different offers and call-to-action phrases to see what’s most effective for your advertising goals. Our system automatically rotates ads within an ad group and shows the better-performing ad more often.

Ultimately, your website determines how well your ads convert, so be sure it’s designed to let users complete the action you want them to take.

Point users to the right landing page.
Typical internet users decide quickly whether to stay on a website or move on to another. When users click on your ad, they should arrive at a landing page clearly displaying the information or product offered in your ad. If users don’t immediately find what prompted them to click on your ad, they’re more likely to leave your site without converting.

Evaluate your site design.
Take a close look at your site’s overall layout and functionality. Sites that are attractive, easy to navigate, and informative tend to be more profitable. You might consider using Google Analytics to get a better idea of how well your site is working.

Test your way to effective site content.
Rather than just guessing what webpage content will lead to the most conversions, we encourage you to try Website Optimizer. This tool enables you to test different versions of your site content such as text, images, and layout on your landing page or any other webpage. The results will show what’s most effective in increasing conversions on your page and boosting your return on investment.

Keep the user experience in mind.
As you design or redesign your landing page and website, make the user experience a high priority. For example:

• Place important information and images on the top left, where the eye naturally goes first.
• Help people get what they want in three clicks or fewer.
• Cut out popups and popunders.
• Create a simple process for users to complete transactions.

Read our guidelines for landing page and site quality to learn more about providing a quality user experience for your visitors.

Monitoring your results allows you to ensure you’re getting a good return on your investment.

Check your account statistics.
Your CTR, first page bid estimates, and keyword status are good initial indicators of how well your ads are performing. Your account statistics are reported at the campaign, ad group, and keyword or placement levels. They include clicks, impressions, CTR, average CPC or CPM, cost, average position, conversion rate, and cost-per-conversion. Learn more about evaluating your account performance.

Set up custom alerts.
The easiest way to identify changes in your account is to create custom alerts for the metrics you want to measure. Once you’ve created an alert and specified the parameters of what you’d like to monitor, we’ll automatically notify you when certain behaviors and/or changes occur within your campaigns and ad groups. Learn more about monitoring your account performance.

Create reports.
You can create reports that tell you exactly what statistics you want to know, from the campaign level to the keyword or placement level.

Use web analytics.
Google Analytics helps you analyze what people are doing on your site. This detailed information shows which AdWords keywords are most profitable and what customers are really looking for on your site.

Optimizing your campaigns regularly will help you keep up with users and market trends and ultimately reach your advertising goals.

Evaluate your campaign performance and make changes as necessary.
Allow your ad performance to educate you about effective strategies for achieving your goals. As you observe your ads over time, you might notice things that are working especially well (or not so well). For example, if you find users aren’t responding to a particular call-to-action in your ad text, delete that ad and try something else. Learn how to edit your account settings.

Try different bidding options.
If your campaign is eligible for the Conversion Optimizer, this feature can help you increase your conversions and decrease your cost-per-acquisition.