I think I have an idea how it works but its not as clear as it should be for me.
- Your max CPC
- Your keyword CTR
- Competitor's max CPC & CTR
- number of competitors
If a keyword has 20 advertisers, it all starts with somebody paying 5 cents per click and possibly rotting in the last place. Other will be incrementally paying more.
For a keyword, lets take the top 3 advertisers -
You -> max CPC 2 dollars -> CTR 5% -> avg pos.1
Acme Software -> max CPC 2 dollars -> CTR 4% -> avg pos. 2
eBay -> max CPC 2 dollars -> CTR 3% -> avg pos.3
Now eBay's will be paying a certain amount (say $1.50) to stay in avg position 3. That is, eBay is paying $1.50 to beat its competitor in 4th position - the AdWords discounter is ensuring that eBay is not paying more than $1.50.
eBay's CTRxCPC value is 4.5. Since Acme Software is in position 2, its CPCxCTR value is higher than 4.5. The discounter ensures that acme software pays only $1.12 per click (4.51 divided by CTR of acme software keyword 4%).
In the above example, you will be paying around 90 cents per click (since you have a better CTR).
Google simply have to have a fixed formal equation which is mathematically provable.
Otherwise how can they work out what to charge us each click?
Anyone have any insight..
Adwordsadvisor you are quite silent so far on this. :-)
Why? Because there will always be advertisers who will try to artificially manipulate aspects of the equation rather than let the market exercise control as Google planned.
In other channels of promotion it is usual to know exactly what an advert costs and to then decide if you want to pay that much for it.
Can I assume if Google decide to charge you your maximum CPC on all clicks or change the % they are applying to move you significantly in that direction you will not complain in the slightest.
I am just trying to understand how the thing I am buying, on my and other peoples behalf, is priced so I can try to buy it as effectively as possible.
I am in no way suggesting anyone can get it for free :-) how could it be unethical to want to know how a price we are being charged is being arrived at? :-)
Or even to know what it will be :-)
You have been very silent indeed (why?) The pricing methodology is clearly stated on your site how it is accounted for (read pricing and billing on Adwords page).
You pay 1 cent above your closest competitor and you do that by taking in consideration 1. What is their maximum CPC and 2. Their CTR => (CPC*CTR)
There shouldn't be ANY mystified formula(?) The only thing mystified is that you don't tell anyone what the prices or CTR's of the closest competitors are. One of the main problems I had was when I started was the use of your "estimator" and the prices it estimated and presented were indeed veery inaccurate. Actually it's still costing me and I am sure to others also because if its not an accurate tool it misleads and affects what everyone pays. After I signed up in order to keep up with my closest competitor i found it cost me higher prices than the "estimator" had estimated.
Adwords Advisor can you reply to this so you can clarify what you have to pay on Adwords?
If you have only 4 bidders
A sets maximum Bid at $1.00 CTR 3%
B sets his maximum Bid at $0.70 CTR 2%
C sets his maximum Bid at $0.50 CTR 1%
D last bidder maximum Bid at $0.10 CTR 1%
What does A, B, C and D have to pay?
For the moment, however, here is the essence of CPC pricing:
First, please do not think of your CPC as being fixed. It literally changes from one moment to the next. So having a detailed map of pricing in a given second is of limited value, IMO.
Essentially Max CPC x CTR = your rank number, which changes from second to second. The same is true of each of your competitors.
Your rank number, compared to that of each of your competitors, determines your position on the page in the moment of time that someone searched on your keyword. In the next moment, it is likely to be different.
The AdWords system will bid on your behalf, and you will pay the minimum amount required to maintain your position - considering your rank number, and that of each of your competitors.
I hope this makes sense as a foundational explanation. More later. :)
One quick note on another topic mentioned earlier: please know that I am only able to post in the evening, when my day job has wound down ;) And quite often, I'll be pushed for time - and only be able to skim this forum. In skimming, I'm not likely to see each and every post in which my user name is mentioned.
(I haven't got to the point of doing a 'find' for AWA in each tread. Not yet a least!)
My suggestion is to not worry about the formula. The formula is the same for everyone. Putting all your effort into building a successful campaign in those areas where you can make a difference is where your payoff is going to be. Tweak your Ads, monitor conversion ratio's and set a max bid that allows you to make a profit. If you can't get the basics right then don't think that understanding a formula is going to save your bacon. It's like a tradesman blaming his tools for a bad job.
A tradesman should KNOW his tools before he starts trading and agree 100% with Mike_A he has the right to know what he would be paying. If our prices are affected by others actions then this should be clear.
Your explanation doesn't make sense or is not clear. The only thing that is allocated in time spans are your ad impressions considering your budget.
CTR is the % of clicks you get in relation to your impressions and there is nothing else that measures CTR (it's well known in the industry).
Google states that if your ad is more relevant you can get rewarded with a better price. This is measured by your clickthru rate compared to others.
Adwords Advisor obviously your pricing is not static while the question is basically on a sample scale of rounded numbers and averages. Kept it simple so no one would require a calculator to reply.
If you have only 4 bidders each get a click (using those ctr's as averages to simplify)
A sets maximum Bid at $1.00 CTR 3%
B sets his maximum Bid at $0.70 CTR 2%
C sets his maximum Bid at $0.50 CTR 1%
D last bidder maximum Bid at $0.10 CTR 1%
What would A, B, C and D have to pay?
What will the positions for each be?
Would someone please reply?
A sets maximum Bid at $1.00 CTR 3%
B sets his maximum Bid at $0.70 CTR 2%
C sets his maximum Bid at $0.50 CTR 1%
D last bidder maximum Bid at $0.10 CTR 1%What would A, B, C and D have to pay?
What will the positions for each be?
My guess would be something like this:
A, $1.00*.03 = .030
B, .70 * .02 = .014
C, .50 * .01 = .005
D, .10 * .01 = .001
So that would be their positions: A, B, C, D.
D would pay .10 per click. C would pay .20, so that .20*.01 would give him .002 keeping him ahead of D. B would pay .30 so that .006 would put him ahead of C, and A would pay .50 -- each staying just a step ahead of the advertiser below.
You put together a basic example, but if B had a 10% CTR instead of 2% he'd be ranked above A and would have to pay 31 cents to stay there. But now A only has to stay above C, so he'd pay less.
Since CTR is dynamic depending on, as Robert_Scott pointed out, the time period over which it's measured, the relationships would change frequently -- even if no one changed their bids. And of course they would be doing that.
Anyway, just a guess. I may well be missing something.
Just realized that I probably should've posted to this older thread instead.
Thus, please see:
AWA
