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Adwords CPC and Quality Score for Dummies
By Shalom Issenberg | April 4, 2008
Understanding your CPC (cost per click) is really simple. Unfortunately there are many marketers that simply don’t get it!
Adwords is a silent bid auction for positioning not clicks.
Your CPC is your Max CPC relative to your closest two competitors multiplied by your quality score.
Example:
If your quality score is 1 and your Max CPC is $2 then your actual bid is $2. (1X2=2). If your quality score was 3 and your Max CPC was $2 then your bid would be $6 (3X2=6).
Now your CPC is your bid (Max CPC X quality score) relative to the highest bid just above you and the highest bid just below you.
Example:
Position 1 [Max CPC = $2.00] [Quality Score = 1] [ Bid = $2.00]
Position 2 [Max CPC = $1.00] [Quality Score = 1] [ Bid = $1.00]
Position 3 [Max CPC = $0.50] [Quality Score = 1] [ Bid = $0.50]
The actual CPCs based on these bids would be
Position 1 [Actual CPC = $1.01]
Position 2 [Actual CPC = $1.00]
Position 3 [Actual CPC = $0.01 greater then position 4 bid up to $0.50]
Why does Google consider the quality score? Because it helps them be profitable! Quality score is largely based on CTR (click through rate).
Scenario: CTR based Quality Score
- Bidder A has a CTR of 100% and bids $1.00/click – therefore over 100 impressions Google will earn $100.
- Bidder B has a CTR of 5% and bids $10.00/click – therefore over 100 impressions Google will earn only $50.
You can see by this example that even though “Bidder B” bids ten times more then “Bidder A”, “Bidder A” is still 100% more profitable for Google – therefore is favoured with a higher quality score. Quality score maintains the “fair market value” for advertisers and improves Google’s ability to serve better search results to their users. The quality score algorithm is Google’s best tool to keep people searching and businesses advertising.
Landing pages can also affect quality score but usually in the sense that non-relevant landing pages or landing pages that are malicious or misleading may result in a “Min Bid penalty” or a lowering of quality score.
Keyword density and relevancy in ad text also contributes to a smaller part of the quality score calculation.
In conclusion: Work on your text ads to make them as effective as possible in terms of CTR and relevancy. Link ads to relevant, optimized landing pages that are consistent with the targeted search terms and the text ad driving clicks.
It’s all about relevancy!
Topics: Google Adwords |