Calculating Actual CPC on Google

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29th July 2007

In speaking with some people not in the Search industry there seems to be a lot of confusion surrounding how the PPC Auction works, and how the “Actual CPC” is calculated. This post should clear everything up.
PPC-Auction
In a nutshell…
- PPC auction is in real-time.
- Advertiser bids a CPC (Cost per Click) on Keywords.
- Ranking is determined by: Max CPC x Quality Score.

That seems pretty straightforward. So, now let’s get a little more granular in the actual calculations that Google goes thru to determine the Actual CPC.

To calculate advertiser A’s Actual CPC (in Scenerio #1), we divide advertisers B “Rank number” by A’s Quality Score, and add 1 cent.

Scenerio #1
Calculating CPC

Ad Ranking chart

Ads are ranked by Rank Number.

Rank number = ( Max CPC * Quality Score).

.65/1.8=.36 the result is the amount that would cause Adverstiser’s A ad to appear in Advertiser’s B’s position.

To appear above that position, you simply add 1 cent to that amount.
.65/1.8=.36 + 1 = $0.37 Actual CPC.

Note:
You only pay the CPC necessary ($0.01) to have a rank number higher than that of the next lower bid.

If a keyword has a low quality Score then Google sets a Minimum Bid needed for your keyword to enter the auction.

The factors affecting your ad rank are:
1) Quality Score
2) Max CPC

So, if you ratchet-up your Max CPC, you will increase your Ad Rank.

The factors affecting your Quality Score are:
1) The keyword CTR.
2) Relevance of ad text.
3) Historical keyword performance.
4) Quality of ad’s landing page.
5) and other relevancy factors.

Any optimization of these factors has the potential to increase your Quality Score, lower your CPC, and/or increase your Ad’s position in the SERP’s.

Here are 10 ways to increase your Quality Score.
In a follow-up post, I’ll write more detail on the Quality Score.

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5 Responses to “Calculating Actual CPC on Google”

seo training Says:
July 30th, 2007 at
That’s a good bit of insighter into CPC and quality score.
Am adding your blog to my blogroll.
Mike Mothner Says:
July 31st, 2007 at
This is one of the best explanations describing CPC and quality score that I have seen. I hope more people who may be confused about this issue have the opportunity to read this. I think the most important aspect about quality score that is highlighted in this article is the fact that it is in fact possible to directly improve your ad quality score. Increasing your quality score has the potential to positively impact your ad rank due to the quality score’s role as a main factor in determining this ad rank.
Dave Davis Says:
November 29th, 2007 at
Great post Shimon…as usual. Thanks for the link too

Looking forward to your analysis on quality score next. Are you going to PubCon?
Sam Hickson Says:
January 14th, 2008 at
Great post on CPC…!

Nice simple and to the point, thanks
SEO Google Gurus Says:
May 5th, 2010 at
Great post and clears things up as I think there’s a lot of confusion in the industry over CPC, and I’ve read articles by SEO’s basically saying that ad position is just determined by an auction, where the highest bidder comes first (i.e. not accounting for quality score).

I think you explained it better than most, and possible a little bit better than Google themselves, lol. Thanks