Adsense is in fact an affiliate program for Google’s Adwords ads: instead of Google selling space on its search results pages (look at Sponsored Ads when you next do a search), it sells space on your web pages for you. Yea sounds pretty crappy buts that’s the hitch. They sell your WebPages space, when it got clicked Google keep some % gives you the rest.

So it is important to understand the Adwords system not just because every single cent of the money you earn from Adsense comes from Adwords, because you will get a bigger advantage of understanding how you can manipulate it.

Google Adwords: Google Adwords are small text-only ads that often appear on the right hand side or top of Google’s search results page when you do a search in google. They are extraordinarily powerful - much more so than you’d think at first sight - for 4 reasons.

They are 1000% targeted: the advertiser chooses which keywords have to be entered before their ad is shown. This means that you can make your ad appear only in front of people actively looking for information about a particular topic.

You sell bags?

Then you can set up your Adwords ads so that they show up only when someone enters “Bags” into Google’s search box. You can also restrict your ad coverage to specific countries or even cities so you can focus your advertising budget geographically too. Its called Geo Targeting. Even language can be manipulated too.

If you wanted, you could decide only to advertise your bags to people living in Western Australia even if you lived in NY!

You only pay for clicks. If no one clicks on your ad you don’t pay a dime.

The amount you pay depends on 2 aspects. The amount you bid for the keyword that triggered the display of your ad, and the success your ad has in attracting clicks.

• The more you bid for a keyword to trigger the display of your ad, the higher it will rank on the page when that keyword is entered by someone.
• The more your ad attracts clicks, the higher it will rank on the page too. (What this system does is move popular ads to the top of the page and thus it automatically makes sure that people tend to see the ads that they find most interesting.)

Google also gives advertisers incredibly detailed near real-time campaign data so you can monitor and adjust your ads without wasting much money. Small changes in your ad, including capitalizing the first letter of some words, can have a Big Impact on your click through rates which can help reduce your click costs.