Targeted Traffic.

You only had to do two things to make good money with adsense; perfectly optimize your blog for a single keyword and then drive targeted traffic to it.

If we go back to the widget example let's look at what happens when the two blogs don't get the right type of traffic. As they currently stand I said both were ranking well in the serp's and neither would be smart priced. Blog A will do OK with adsense but not great. Blog B will do much better as the blog is better optimized for the traffic from the serp's.

Now imagine that neither blog gets serp traffic for their respective keywords or very little compared to other types of traffic.

If you are a proponent of using social media to get traffic to your blog then pay attention. Let's say most of your traffic comes from stumblers and entrecard and RSS subscribers and Digg etc. If you have Adsense on your blog you run the risk of being smart priced. Most of these social visitors will never click an ad - and that's a good thing. Unfortunately a few will click an ad from time to time. When they do Google knows where they came from and knows that they aren't targeted traffic looking for widgets. They are just casual browsers and if you get too many of these casual browsers clicking your ads then Google will discount the hell out of the CPC in order to compensate the advertiser who is getting really crappy traffic from your site. Google will smart price you until you provide quality traffic. 

Social traffic is not quality traffic and if you get a lot of it then you had best not have Adsense on your site. Period.

Because you have a lot of social traffic that rarely clicks ads you will have a very low CTR - hence the misconception that low CTR means you are smart priced. You aren't smart priced because you have a low CTR, you are smart priced because your traffic is crappy and not targeted for the ads. You get a low CTR just because most of your traffic doesn't click ads.

My sidebar ads are all low CTR - under 1% and yet they bring in up to $5 a click. They aren't smart priced - they just don't get a lot of clicks. The top ad block gets the bulk of the clicks.

How to tell if you are doing things right.

For the most part, the first visitors I get to my site each day come from Asia and Australia. This is because they get up first. Then later Europeans and Africans start showing up and finally North and South Americans. The sad fact is that most advertisers using Adsense are North Americans and as such they basically only want traffic from North Americans. (Most only have products available in the US or Canada) The best paying ads and highest converting products tend to be by and for Americans and Canadians. This isn't fair, it sucks and in the end comes down to the reality that European and Asian businesses have yet to take advantage of the internet to the same degree as North American businesses. If your traffic comes from mostly US and Canadian visitors then you will get better Adsense Ads. If your traffic is mostly from elsewhere you will get poorer paying ads and also run the risk of getting smart priced. 

The first clicks I get each day are from Asia and Australia - my CPC always starts off low. Later in the day my CPC increases, sometimes quite dramatically. This is because the clicks are now coming from the US and Canada - the people my best ads are targeting. 

If you see the same trend then you are doing things right. If you start off with higher CPC and see your CPC drop over the course of the day then you are not doing things right. It means you are getting more less desirable traffic than desirable.

This happens when the bulk of your traffic comes from countries other than the US and Canada. This also happens when the bulk of your traffic comes from sources other than the search engines. In both cases you are getting the wrong traffic. If this is the case remove the Adsense ads from your site and start optimizing it for the search engines.

It all comes down to conversions for the advertiser. The only way you will get good converting traffic for the advertiser is by providing them with people looking for what they are selling.

The only way to guarantee that your traffic will convert is by ranking well for the keyword the advertiser is chasing. My best advertiser is looking for people looking to "make money online". The ad says "Make Easy Money Online". Most of my traffic - about 75% find my blog searching on Google for the term "make money online" or a long tail version of that term. If one of my visitors clicks on the ad they are most likely looking for what the advertiser has to offer and even if they don't buy, Google can charge the advertiser full price because the visitor left a "make money online" trail. They found me using the term and they found the advertiser because of the term. That is as targeted as traffic can get and Google can charge the advertiser full price. If all my traffic came from stumble upon and clicked the ads then the advertiser wont get many conversions and Google can see where the traffic originated, knows it isn't targeted and will penalize me and give the advertiser a rebate.

That folks is how Adsense works.

In Summary.

To make money with Adsense;

You have to target a specific keyword - not a general one.

You have to optimize your entire blog for the keyword - not just a page for this and a page for that. (This can be done but until you know how - don't!)

Only ONE post per page - yes I mean the home page too. Most people will get sent to your homepage and if you have a bunch of snippets for different keywords you will have a bunch of different ads showing. This means the person who found you for the "blue widget" keyword may click on the "green widget" ad. This isn't targeted. You will never get the best performing ads if your blog is not perfectly optimized for the ad. You can't be perfectly optimized if you blog about different topics.

If your site is about widgets then you had better only get widget ads. If you are about blue widgets then you only want blue widget ads.

The only traffic you want to your site is targeted. This means search engine. You never want social traffic. You can target specific forum traffic if it is centered around your keyword but be aware that the CTR will be low. 

This in a nutshell is my system. Yes there is a different method you can use and quite frankly it is the more common form. Many practitioners choose to go with quantity over quality - they basically create hundreds or thousands of pages on many sites all poorly optimized and smart priced but still make a decent buck just because of the volume of clicks. The danger is that they use Adsense tricks to get people to click ads and the sites are clearly built for Adsense and contain little useful info. This is a violation of the Adsense TOS and if caught they risk getting banned. 

Note: I didn't buy Joel Comm's Adsense Secrets book but I did check out some of his blogs that have Adsense on them. I don't know what his book is about but it only took a few minutes to realize that his sites were poorly optimized and smart priced so I assume if he makes money with Adsense then he is a practitioner of quantity over quality. His sites had little content - lots of Adsense (typical made for adsense sites) and the blocks were showing ads for Bowel Cleanser and Family Vacations in the same ad block. (A sure sign of smart pricing) I, however don't recommend this as you have to do a lot more work and run the risk of losing your adsense account. It may work but not as well as my system and it is a lot more risky.

I have less sites using Adsense but they are all highly optimized for my keywords, they all have a lot of useful content, they all get the best performing ads and they all get the bulk of their traffic from Google's search engine for the keywords they are optimized for. This is a system that is both safe and effective and it will continue to work for as long as Adsense exists. 

An optimized blog plus targeted traffic equals a healthy Adsense paycheck.

That's all there is to it.