calculation of CPC

question regarding old thread

[chemoul]

Hi,

I just read the following:
[webmasterworld.com...]

I can't quite follow how the CPC is calculated. If the lowest rank pays 0.05 shouldn't the next higher rank only have to pay 0.06?

Thank you for your help.

Chemoul

[eWhisper]

In Advertiser 123's example, rank number and position look like this:

A sets maximum Bid at $1.00 CTR 3% - Rank number = 3, and Position = 1
B sets his maximum Bid at $0.70 CTR 2% - Rank number = 1.4, and Position = 2
C sets his maximum Bid at $0.50 CTR 1% - Rank number = 0.5, and Position = 3
D last bidder maximum Bid at $0.10 CTR 1% - Rank number = 0.1, and Position = 4

In terms of each advertiser's CPC in the above example, it looks like this:

A sets maximum Bid at $1.00 CTR 3% - CPC paid = 47 cents
B sets his maximum Bid at $0.70 CTR 2% - CPC paid = 26 cents
C sets his maximum Bid at $0.50 CTR 1% - CPC paid = 11 cents
D last bidder maximum Bid at $0.10 CTR 1% - CPC paid = 05 cents (minimum CPC)

From the above URL.

Bidder D's rank number is 0.1. Therefore, bidder C must have a rank number of 0.11 to be shown above bidder D. As they have the exact same CTR, the only place to make the bid rank difference (CPC x CTR) is price. To reach a 0.11 bid rank, their bid must be $0.11. (1%CTR x $0.11CPC = 0.11 bid rank).

Bidder C's rank number is 0.5. So bidder B must reach 0.51 rank number to be shown one position higher. Bidder B's CTR is double that of bidder C, so (2% CTR x $0.26 = 0.52), thus bidder B pays $0.26 for one position higher than bidder C. This is an excellent example of how CTR can lower your price.

In the above example, if Bidder B only had a 1% CTR, they would be paying $0.51/click, so essentialy they are halfing their CPC with a higher CTR.

Does that clear it up at all?

[chemoul]

Thank you for the reply eWhisper and sorry, I should have copied that part from the old thread myself (still learning).

I understand the explanation, and I guess since the original post comes from AWA it is pretty save to assume that Google calculates the CPC this way.
I got confused because a lot of other sources seem to think that in order to get the next higher position you only have to pay 0.1 more (which would be better for my wallet).

Chemoul