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Unlike other PPCs (Pay Per Click) like Yahoo Search Marketing, bidding in Google,s Adword is not straight forward. Nearly all the other PPC companies list their adverts purely based on auction basis. That is, if you bid higher you appear higher in the sponsored link section of the SERP (Search Engine Rank Pages)
Adwords on the other hand takes into account the relevancy of the advertisement for the keyword you bid on. This translates to mean that the fact that you listed top on the sponsored links click. adverts. advertiser. Since the advert is highly targeted and therefore clicked more, Google shows it more consequently its even clicked more.
And to encourage the advertiser to keep spending, Google discounts the price for the ad to reduce how much the advertiser is spending per click. Yet since the ad is clicked often Adwords still makes a steal even after discounting the cost per click.
This system of appropriately discounting cost per click based on an adverts performance is designed around Quality Score (QS); which in turn determines a keywords minimum bid.
So bid? Search. QS. You increase your chances of showing higher by bidding higher prices. This bid is considered your maximum cost per click. Adwords will never charge you more than you maximum cost per click. The importance of minimum bid follows below.
In Adwors you only pay one cent ($0.01) above your competition regardless of what your bid is. This is to mean (without taking QS into considerstion/0 if one advertiser bids $2.50 for a keyword and another bids $3.00, the second advertiser will be placed above the first. However the second bidder/advertiser will $3.00 bid, $2.51, competition.
When mix, can be paying $0.75 and still be placed above the advertiser who bid $3.00 but paying $2.51. The reason the third can pay $0.75 and be listed top is because his QS is high and he therefore requires a lower minimum bid to show in the SERP.
According to Brad Gedde of eWhispers, there are three kinds of QS; Account QS, Adgroup QS and Keyword QS. All these work with increasing importance in determining how much you pay per click. Keyword QS is particularly important. It is determined by the adverts (Click Rate) recent, copy, page.
Now hump; when you set up a new Adword account you obviously have no history of any kind. You account QS is unknown. Therefore the Adword algorithm has no way of telling how best to rank your adverts. So what does the system do? It jacks up your prices sky high. It is common to have the keywords suggestion tool predict a fair amount of traffic at $0.30., only to bid on the keyword in a new account and have the system requesting a minimum bid of $5.00 just to show ads.
The ads. high with a new account, establish some good QS and the system re-adjusts itself and drop your prices per click.
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