I have said that you shouldn’t use broad match in AdSense campaigns. While I still lean in that direction, it would be more correct to encourage you to test both phrase and broad match and then base your decision on hard conversions data.
An excellent article on this topic: Google AdWords Marketing: Exact Match Bidding
How these differ:
Broad Match actually matches the words from the phrase any order. What is a little harder to follow is broad also matches synonyms for your phrase. If you have the phrase “tennis shoes” in your campaign, you ad may be triggered by a search for “tennis sneakers”. So the complete phrase has to be there, but Google may accept a synonym for part or all of your phrase. So if your phrase is “tennis shoes” won’t get matched for “tennis elbows” or “running shoes”.
Here is the link to Google’s help on this topic: What are keyword matching options and What is broad match?
Exact matches only when all the words are used in the exact order, but with no other words in the query.
Yahoo adds some confusion in that it uses the terms “standard and “advanced”. “Standard” is similar to Google’s “exact”, but introduces some minor variations to your phrase, including plurals and misspellings. “Advanced” is analogous to Google’s “broad”.
So what should you use, broad or phrase??
I think the best answer is “it depends” and some testing will be needed to ferret out the differences. I have tried both with a number of clients and usually find that “phrase” performs better than “broad”. I say usually because there are other factors that affect the results.
You might come to the conclusion that “broad” was better because your ad will be triggered on a wider range of phrases. After all, your ad should accurately identify what you are selling and keep your clicks relevant. However, Google and Yahoo both use click-thru rate as part of there formula to determine what to charge. So, if “broad match” causes your ad to be presented for searches that are irrelevant to your ads, your click-thru rate will be lower and you CPC rate will go up. More relevant matches will drive more clicks, improve your click-thru rate and drive down the CPC.
See: Quality Score
So again I come back to the importance of using “cost per conversion” (also known at cost per acquisition, CPA), as your metric instead of “cost per click” (CPC). As long as you have a way to measure cost per conversion you have a reasonable handle on the value of the phrase and can make an educated choice about what match perform best at the least cost.
Added 3/10/2008 >> Another good article on this topic: Focus On Exact Match