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The average ranking has to do with the fact that sometimes a phrase will work for more than one query, and the fact that someone else can target only a specific phrase. And, it factors in the CPC. An example is in order:
So, let's say you buy the term 'blue widget'.
And let's say that I buy ONLY the specific phrase 'blue fuzzy widget'.
Your term 'blue widget' will show up on searches for 'blue widget' AND 'blue fuzzy widget', but since I bought only the specific phrase 'blue fuzzy widget', my ad will only show up on searches for the phrase 'blue fuzzy widget'.
Now to factor in CPC:
You may bid the most for 'blue widget' and land the #1 spot, but I may outbid you for 'blue fuzzy widget' so your ad ends up in position 2 for 'blue fuzzy widget'.
That would give you the average position of 1.5 for 'blue widget'.
Also, reporting is available online 24-7 with live results of your spend.
Does that help?