Sun Jan 06 22:02:43 PST 2019

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couple other mystery meat variables
. I believe Google uses the average click-
through rate from the 1,000 most recent ads in this calculation, though for some
markets with low search volumes they may use other quality indicators, like CTR
for an ad group. This means that if you know how to get a high click-through rate,
you can dominate Google AdWords by serving up ads at a far cheaper rate than
what your competitors are paying.
The following table gives examples of how the Google system calculates bid prices
and ad positions. Observe how some low priced ads appear above high priced ads
because they are more relevant. Also observe that actual click cost sometimes
varies widely when compared to max bid price. Some clicks are at times expensive
and at other times they are cheap. It is the average click cost that matters, since
that is what you are paying. Max bid does not matter since sometimes it can widely
depart from actual click price. For example, I have seen a $6.00 max bid that had
clicks go for 77 cents.
Ad Number Max Bid CTR
(relevancy

Effective Bid Ad Position Actual Click
Cost
1 0.40 5% $2.00 4 $0.40
2 0.26 10% $2.60 2 $0.26
3 1.00 2.53% $2.53 3 $0.81
4 1.50 2% $3.00 1 $2.31

Distribution buys further distribution. Off the start, you will want to overbid
slightly as you will be competing against the best ads that have developed over time
in your niche.
The bid prices Google suggests are often somewhat high. I usually cut the
suggested bid price by 20-50% when I first start an account, then monitor it closely
and change it to try to maintain decent ad position and ROI.
Quality-Based Minimum Bids
In the past, Google had a five cent minimum bid price and only allowed ads to
display if their Google click-through rate was above 0.5%, but in August of 2005,
they shifted to quality-based minimum pricing.
This means that if your ad is deemed exceptionally relevant, you can get clicks for
as low as one cent, depending on how competitors are bidding. If your ads are
irrelevant, you will have to pay a higher minimum bid to make up for the lack of ad
relevancy.
Google has been making their ad system more blackbox-like. They include things
like landing page quality in their ad relevancy scores. In other words, we can?t
know exactly how it works, but they will create a system that optimizes for
maximum internal revenue, while delivering value to trusted advertisers, and
overcharging irrelevant or noisy low value advertisers. If they are vague about their
exact ranking criteria, it will be harder for people to game the flaws in their ad
system.