Overview
In my previous blog post, I had described why Paid Search Advertising is so powerful and how to get started with it. Today, I will delve deeply into several important concepts within Paid Search Advertising including:
- max CPC (cost per click)
- quality score
- determinants of ad position and actual cost per click
What is ad position or ad rank?
Recall that when a user searches on Google, a set of links to web pages are returned. The set of links at the right and towards the top of the page (with a light brownish background) where it says Sponsored Links, are really advertisements. Each such advertisement has an ad position starting from ad position 1 (top most ad), and then ad position 2 (the second ad from the top), etc. all the way down the right to the bottom of the page.
It should, perhaps, come as no surprise that the higher up the ad is, the more the chances that it will get clicked, all other things being equal. This therefore implies that you want your ad to be higher up on the page. So this leads to a critical question: what factors determine the position of your ad?
Your Ad Position is determined jointly by Max CPC and Quality Score
Recall that in Paid Search Advertising you pay only per click, i.e. only when your website gets a visitor. All the major search engines (Google, Yahoo, Microsoft) now work this way. When setting up your ad campaign, you decide the maximum you are willing to pay per click (i.e. pay per visitor). Let’s say that you determine that $0.50 is the maximum you are willing to pay per click. This $0.50 then is your Max CPC (cost per click).
Quality Score can be thought of as a measure of the user experience when users search, see your ad, click on your ad, and visit your website. If the overall user experience is good, the Quality Score will be good. So how exactly is Quality Score measured? The different search engines measure it differently. Google, for instance, defines Quality Score at a keyword level, i.e. each keyword has its own Quality Score. In Google, the Quality Score depends on:
1. alignment of the keyword, ad copy and landing page (i.e. is the ad copy relevant to the keyword searched on, and is the landing page content relevant to the keyword searched on and the ad copy clicked)
2. click through rate, i.e. how often does a user click the ad after they search on a specific keyword
3. historical performance of the keyword in question
4. account level performance of your campaigns
5. other factors
Your ad position is jointly determined by your Max CPC and your Quality Score relative to your competing advertisers. The higher your Max CPC and/or the higher your Quality Score relative to your competitors, the higher up your ad will show.
What is the relationship between Max CPC and the amount actually paid per click?
The easiest way to describe the relationship between Max CPC and actual amount paid per click is by considering a straight auction where the winner pays $0.01 more than the next highest bidder. So here too, you will pay less than your Max CPC, and just enough to beat the next highest bidder. Of course, because Quality Score calculations also figure into the equation, this amount will not simply be $0.01 more than the next highest bidder.
In my next post, I’ll delve deeply into the critical tradeoff between getting more visitors to your site and paying more per visitor. I’ll also discuss how all this can be neatly linked together in an effort to maximize your profits and what that even means.
Written by Nadir Hussain
COO, Media Flint, Inc.
Nadir Hussain is an Internet Advertisement and Search Engine Marketing expert. He is both Google and Yahoo certified for their Internet Advertisement programs. He teaches an Internet based Advertising class both at UC/Berkeley Extension and the Continuing Studies Program at Stanford University. His education comprises of a Bachelor’s degree in Computer Science & Mathematics from UC/Santa Cruz, a MSEE from Stanford University and an MBA from UC/Berkeley.
