Successful AdWords bidding

Numerous AdWords users do not understand how Google’s bidding model works and therefore miss opportunities to exploit positions within certain marketing. The following page aims to go through how Google rank adverts and the role of your maximum cost per click and how AdWords decides how much you pay per click.

Understanding your rank on AdWords

Lots of AdWords users believe that the more you pay the higher you appear on Google’s search engine result page, in most cases this is true however it is not the only criteria for improving your position/rank.

Here is an example of three competitors with adverts that write relevant adverts directed to relevant landing pages.

Max CPC Quality Score Rank CPC

Competitor 1 1.5 2 (min 5p) 3 1.01
Competitor 2 1.0 2 (min 5p) 2 0.51
Competitor 3 0.5 2 (min 5p) 1 0.05

After a few weeks each advert receives various amount of clicks, as a result the quality score reflect the activity.

Max CPC Quality Score Rank CPC

Competitor 3 0.5 5 (min 1p) 2.5 0.21
Competitor 2 1.0 1 (min 10p) 1 0.76
Competitor 1 1.5 0.5 (min 20p) 0.75 0.20

If competitor 3 understands what has happened he can alter his bid and pay only 1p per click a good strategy if he has a limited budget or wishes to increase the cost per click of his competitors.

Max CPC Quality Score Rank CPC

Competitor 2 1.0 1 (min 10p) 1 0.76
Competitor 1 1.5 0.5 (min 20p) 0.75 1.01
Competitor 3 0.10 5 (min 1p) 0.5 0.01

The calculation for finding the actual cost per click is

The rank of the competitor below you / your quality score + 1p/1cent

This calculates the minimum you would have to pay to appear above your competitor. The bottom position does not have a lower competitor so you pay your minimum cost per click.

This example is very extreme and is only designed to highlight the mechanism of how AdWords calculates your actual cost per click. However when you see minimum cost per click values on your AdWords account you can see the impact they have on your account.