Unlike other PPCs (Pay Per Click) like Yahoo Search Marketing, bidding in Google,s Adword is not straight forward. Almost all the other PPC companies list their adverts simply based on auction source. That is, if you bid higher you emerge higher in the sponsored link section of the SERP (Search Engine Rank Pages)
Adwords on the other hand takes into balance the relevancy of the advertisement for the keyword you bid on. This translates to mean that the truth that you listed top on the sponsored links does not mean you are paying the most per click. This is an ingenious way to recompense highly performing relevant adverts. And it works for both Google and the advertiser. Because the advert is highly targeted and consequently clicked more, Google shows it more as a result its even clicked more.
And to support the advertiser to keep spending, Google discounts the cost for the ad to reduce how much the advertiser is spending per click. Yet since the ad is clicked frequently Adwords still makes a steal even after discounting the cost per click.
This system of appropriately discounting price per click based on an adverts performance is designed around Quality Score (QS); which in turn determines a keywords minimum bid.
So what is minimum bid? Minimum bid is the least amount you ought to bid for your advert to show in Google Search. This minimum bid is a factor of the QS. You add to your chances of showing higher by bidding higher prices. This bid is considered your greatest cost per click. Adwords will by no means charge you more than your maximum cost per click. The importance of minimum bid follows below.
In Adwodrs you only pay one cent ($0.01) above your competition regardless of what your bid is. This is to mean (without taking QS into considerstion if one advertiser bids $2.50 for a keyword and another bids $3.00, the second advertiser will be placed above the first. However the second bidder/advertiser will not pay the $3.00 they bid, instead they will pay $2.51, just a cent higher than the competition.
When you place QS into the mix, an advertiser with a high QS can be paying $0.75 and still be placed above the advertiser who bid $3.00 but paying $2.51. The reason the third can pay $0.75 and be listed top is because his QS is high and he consequently requires a lesser minimum bid to show in the SERP.
According to Brad Gedde of eWhispers, there are three kinds of QS; Account QS, Adgroup QS and Keyword QS. All these work with increasing importance in figuring out how much you pay per click. Keyword QS is predominantly significant. It is determined by the adverts CTR (Click Through Rate) chronicle both overall and recent, significance of the ad copy, the account general QS as well as the landing page.
Pronto here comes the Adwords beginners hump; when you put up a new Adword account you obviously have no history of any sort. You account QS is unknown. Consequently the Adword algorithm has no way of telling how best to rank your adverts. So what does the system do? It jacks up your prices sky high. It is common to have the keywords suggestion tool predict a fair amount of traffic at $0.30., only to bid on the keyword in a new account and have the system requesting a minimum bid of $5.00 just to show the ads.
The system does this to put the onus on the advertiser to prove the value of their ads. The only way to break this is to bid very high with a new account, establish some good QS and the system re-adjusts itself and drop your prices per click.
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