What Determines your ACTUAL Cost-Per-Click in AdWords?
When people hear that AdWords uses a cost-per-click model to charge advertisers, the question that comes to their mind soon is, “How much does a click cost?” If you are familiar with AdWords, you know there is no simple answer to that question.
Always keep in mind that AdWords is an auction-based system, and that all ad appearances are the result of advertiser bids for ad space. As you may know, AdWords offers many different bidding methods and strategies, some very simple, and some complex. But your actual bid in the auction is not the same as your actual cost per click. In fact, you will almost always pay less than your bid. This is because of the “discounter” feature in AdWords that makes sure you only pay the minimum amount required to exceed the ad rank of ad below you.
Although the system is auction-based, the advertiser bids are not the only factor to determine the ranking order of the ads. Another key factor is called “quality score.” Google wants users of its search engine to have a good experience, and get good results. Because of that, Google doesn’t want poorly made or irrelevant ads to show in prominent places. So it instituted a quality check feature to evaluate the relevancy of the words that were searched, the keywords that triggered the ad, and the text of the ad itself. Quality score also takes other factors into account, such as the click through rate of the ad, and the relevancy and load time of the landing page.
For many years, the ranking order of the ads in an auction were determined by this formula:
Bid X Quality Score = Ad Rank
Although this formula is still predominant, Google announced that the use of ad extensions is now a factor in the ranking formula also, but it does not disclose exactly how. It’s clearly apparent, however, that bid and quality score are still the biggest factors in determining ad rank.
In an AdWords auction, Google will process the ad rank for each eligible ad, order them accordingly, and then make sure each advertiser only pays one penny more than is necessary to rank higher than the ad immediately below.
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