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Google AdWords: Actual CPC calculation

Your maximum CPC bid is different from the actual CPC paid per click and Google calculates it for each auction. The next example explains how Google calculates the actual CPC you pay for each click.


Advertiser

CPC bid

Quality score

Rank #

Position

CPC

A

$0.40

1.8

$0.4 x 1.8 = 0.72

1

$0.37

B

$0.65

1

$0.65 x 1 = 0.65

2

$0.39

C

$0.25

1.5

$0.25 x 1.5 = 0.38

3

$0.01


The table shows three advertisers running ads on the same page. Each advertiser has a different CPC and Quality Score. The Quality score listed here are only for illustration purposes, this number is not visible in your account. The rank number gets calculated by multiplying the CPC bid with the Quality Score. Advertiser A has the highest rank number. This means he gets position number one on the page. Next Google calculates how much to charge each advertiser for a click.


The actual CPC is the minimum amount needed to maintain a rank number higher than the next lower ad. This is one cent more than the amount that will result in a rank number that will cause the ad to appear in the next lower position. To calculate this Google divide the rank number of advertiser B with the quality score of advertiser A. The result is the actual CPC that would cause advertiser A’s ad to appear in advertisers B’s position ($0.36). Now Google adds one sent to put advertiser A’s ad in the top position. The same calculation is used to calculate the actual CPC for advertiser B. Notice that Advertiser A pays less that advertiser B for a higher position. This happens because advertiser A has a higher Quality score that advertiser B. Finally advertiser C only pay’s $0.01 because there is no ad appearing below it and Google simply charges the minimum bid for that keyword based on its quality score.


If your keyword has a low-Quality Score, Google sets a minimum bid for your keyword to enter the auction and trigger ads. If your CPC bid is lower than the minimum bid your keyword will be set to inactive. This means it won’t trigger any ads. The next example shows how Google calculates the actual CPC for a keyword with a low-Quality Score.


Advertiser

CPC bid

Quality score

Rank #

Position

CPC

A

$0.40

1.8

$0.4 x 1.8 = 0.72

1

$0.37

B

$0.65

1

$0.65 x 1 = 0.65

2

$0.14

C

$0.25

0.5

$0.25 x 0.5 = 0.13

3

$0.20


This example is the same as the previous one except for advertiser C with a low-Quality Score of 0.5. Remember that a low-Quality Score requires a minimum bid before a keyword can participate in the auction. In this case, the minimum CPC bid for advertiser C is $0.20. Notice that because the rank number of advertiser C dropped the actual CPC for advertiser B was also been lowered.


To determine the position in which your ads are likely to appear you can use the traffic estimator tool provided by Google AdWords. This tool only provides an estimate and may not match the actual performance of the ad.


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