Here’s the short answer: Ad position is determined by the Rank Number. Rank Number is determined by your keyword CPC (or CPM), and your Quality Score. The higher your Rank Number, the higher your ad position.
Here’s the long answer:
What is Google’s Quality Score? It is a measurement of the relevance of an Ad.
Google’s definition of Quality Score: “This is the basis for measuring the quality of your keyword and determining your minimum bid. Quality Score is determined by your keyword’s clickthrough rate (CTR), relevance of your ad text, historical keyword performance, the quality of your ad’s landing page, and other relevancy factors.â€?
“Other relevancy factors� is undisclosed by Google.
“Quality of your ad’s landing page� is a call for SEO.
The first step in ranking each ad is calculating the “Rank Number�.
This is calculated by multiplying the Max CPC by the Quality Score.
For example, let’s say advertiser A is in position #1. And, advertiser B is in position #2.
To determine advertiser A’s rank number, we divide advertisers B “rank number� by A’s Quality Score. The result is the amount that would cause advertisers A ad to appear in Advertiser’s B position. To appear above that position, you simply add 1 cent to that amount. The results in the actual CPC. See below.
Confused?
Step #1 Calculate rank number. This is calculated by Max CPC * Quality Score.
Your actual CPC is the minimum amount to maintain a rank number , higher than the next lower ad.
Using the example above:
.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. Which results in an actual CPC of .37 cents.
.65/1.8=.36 + 1 = Actual CPC
Remember: You only pay the CPC necessary ($0.01 more) to have a rank number higher than that of the next lower bid.
Important note: It is very possible to have a high Quality Score and actually pay less to appear in a higher position than your competitor. (Hint: Optimize those landing pages).
If you want to see the position where your ad will most likely appear, Google has made available the Keyword Traffic Estimator tool in your AdWords account.
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{ 5 comments… read them below or add one }
Shim – I am confused about the CPC. I assume that the – before the rank is established, the amount that I would pay is based similar to Yahoo auction. For instance:
B – Bid .65 True CPC .41
A – Bid .40 True CPC .26
C – Bid .25 True CPC .04 (or 1 cent more than the next bid)
but factor in the Quality Score – and the rank & true cpc would be:
A – rank=1 – true cpc .26 — ??? .37
B – rank=2 – true cpc .41 — ??? .39
C – rank=3 – true cpc .04 === .04 ok
Show how you achieved the CPC – thanks
It starts with the lowest bidder, and takes into consideration the Minimum Bid which Google dictates. This is very different than Yahoo.
so you are saying the cpc calc is some secret formula?
To add a bottom-line consideration: Yahoo/YSM determines ad position based on “max bid” whereas Google does it based on how much your total clicks are worth over time. For example, with Google you might have a lower PPC bid but achieve a higher position because your CTR is greater – so your total ad spend is higher (i.e. Google’s revenues are higher.) Another reason why site-side conversion rate is *extremely* important for advertisers (as opposed to PPC click-thru rate).
I have a specific keyword which shows 22 impressions with a ctr of 4.54%
with only 1 click.
The average position is 7.4 and my cpc is £0.08.
th3 site is a new website only went live 9 days ago, should i increase my cpc?
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