Online Marketing Blog

How AdWords Determines How Much You Pay Per Click

Back in the good old days, AdWords worked in a very basic way. The higher your bid per click, the higher your position. Simple. There are a lot of other PPC networks still operating on this model and that is one reason nobody can remember their names.

Two years ago (I think) when Google dragged it’s advertisers kicking and screaming into the new Quality based bidding system, the game completely changed. Google AdWords no longer operates on a “highest bid wins” system but on a rather confusing and sometimes illusive set of quality criteria.

Some people find it very difficult to get their heads around how this “quality” effects their bid prices and ultimately their ROI. Today, Google’s Chief Economist, Hal Varian has posted a fantastic video that simplifies the whole system and makes it easy for anyone to understand.

Get the Flash Player to see this Google AdWords tutorial about building your keyword list.

Easy to understand or what?

Now that you understand quality score a little better, realize how important it is to improve your quality score by increasing your click through rate and re-evaluating your landing page relevancy, what are you waiting for? Even if you increase your CTR by 0.01% a day over a month, that can be enough to bump your keywords quality score up and reduce your overall costs significantly.


  1. avatar
    Clint Says:
    March 14th, 2009 at 1:53 am

    Very simple to understand in your words Dave. Thanks for this small yet easy to understand post!

    Reply

  2. avatar
    coco manzareck Says:
    March 15th, 2009 at 4:22 pm

    Hello :), does anyone know where can i find more resources about Quality Score?

    Reply

  3. avatar
    Linda P. Morton Says:
    March 16th, 2009 at 7:45 pm

    Thanks for helping to clarify Google’s quality scores. I understand it better now.

    Reply

  4. avatar
    Wilson Pon Says:
    March 17th, 2009 at 7:37 am

    Dave, I must say that this is one of the most easiest and simplest article about the Google Adwords that I have ever read. The good things is, even the junior high students will understand your explanation as well.

    Great work, well done!

    Reply

  5. avatar
    IM Products Reviews Says:
    March 18th, 2009 at 2:36 pm

    Thanks so much Dave for this video.I am sure many people will get benefit from this great post to understand Google’s quality score. Thanks again…

    Reply

  6. avatar
    Ray Says:
    March 22nd, 2009 at 4:52 am

    Very to understand Dave, You have a clear voice and you don’t beat around the bush.

    Keep up the good work, Dave,
    Ray.

    Reply

  7. avatar
    Marketing consultant Says:
    March 23rd, 2009 at 3:06 pm

    very good explanation.
    thank you!

    Reply

  8. avatar
    Web Design Company Says:
    March 27th, 2009 at 10:55 pm

    I guess as you have rightly pointed out, the decision is based largely on ourselves as we put our own value on the keywords. At a macro level this in turn will determine the minimum per click charge.

    Reply

  9. avatar
    Mal Milligan Says:
    March 29th, 2009 at 3:16 pm

    I thought at first Google designed the system just to be different from Overture. But really, their “improved” bidding system rewards the more successful campaigns making it a more elegant and actually more appropriate approach.

    Reply

  10. avatar
    shiju Says:
    March 29th, 2009 at 8:02 pm

    nice and simple post to demystify adwords for everyone..many thnx….shiju

    Reply

  11. avatar
    Onetrouser Says:
    March 30th, 2009 at 7:23 am

    It seems Google has learned a lot from the videos of technology in Plain English. User generated Google Docs in Plain English http://www.youtube.com/watch?v=eRqUE6IHTEA looks far more better, but a great video still. Thanks for sharing.

    Oh, and a tip!
    If some of you have questions of e.g. social media, you can find simple answers by searching Youtube “Your keyword” “in plain English”.

    Great works for all,
    Onetrouser

    Reply

  12. avatar
    atul kumar Says:
    April 6th, 2009 at 3:16 pm

    Thanks to sharing for helping to clarify Google’s quality scores. i will use it.

    Reply

  13. avatar
    Andrew Mafeld Says:
    April 7th, 2009 at 9:40 am

    thanks to share this useful information.i use google adsense,but i don’t know how we use ppc.

    Reply

  14. avatar
    Martin Gavin Says:
    April 21st, 2009 at 3:25 pm

    Exellent clip, great share! I wasn’t aware Google had easy to follow clips like this.

    Reply

  15. avatar
    Joe Says:
    May 1st, 2009 at 3:16 pm

    Very well explained content…
    you have reallly made things simpler on you site redfly….
    Thanks redfly.. thanks adwords..

    Reply

  16. avatar
    geld winnen op internet Says:
    May 5th, 2009 at 7:57 am

    Well that’s a useful explanation. Anybody can understand this. Thanks for posting!

    Reply

  17. avatar
    Webmastering Blogger Says:
    May 5th, 2009 at 9:43 am

    Now I understand why click prices for some keywords have enormous oscillations in short period of time, sometimes during only one day – because bid of the other advertiser’s is also influencing the price I pay.

    I’m subscribed to Red Fly Marketing blog via email newsletter and RSS, but I received this post’s newsletter today on May 5th, and it is published on March 12th. Why is that?

    Reply

  18. avatar
    Jordan McClements Says:
    May 11th, 2009 at 8:42 am

    Looks like my understanding of the ratio of importance of CTR, Relevancy, and Landing Page quality were a little bit off!

    Reply

  19. avatar
    Simon Says:
    May 11th, 2009 at 3:38 pm

    Great post, it seemed simpler when they used the highest priced keyword gets the best position. Though the prices that keywords are normally is very high these days.

    Reply

  20. avatar
    Supply Chain Management Says:
    May 13th, 2009 at 12:33 pm

    I’m curious to know whether google will ever part with it’s strict CPC strategy and also allow people to be paid based on impressions.

    Reply

  21. avatar
    Talia Phillips Says:
    May 19th, 2009 at 8:31 am

    Great, there are so many different takes on google adwords and many of them are confusing. It’s nice to see something that is simple and make sense :)

    Reply

  22. avatar
    Kevin Quinlan Says:
    June 1st, 2009 at 12:16 pm

    I think most people really do under estimate the landing page value. A lot of SEO focus on each post but the layout to ensure the landing page is maximized i think is lost at times. Good post – time to tweak a little more!

    Reply

  23. avatar
    Chris Chong Says:
    June 2nd, 2009 at 10:00 pm

    We have been doing many experiments with landing pages that are optimized well for a specific keyword for organic searches AND PPC. It seems that it does lower the cost significantly if the landing page is optimized well.

    Reply

  24. avatar
    Orchid Box Says:
    June 3rd, 2009 at 2:09 pm

    Great video. Kevin above me is spot on, it’s all about the landing page giving you top quality scores on your keywords – you can get many to 10 and 0.01c very easily with a little optimisation.

    Reply

  25. avatar
    haberler Says:
    June 9th, 2009 at 1:14 pm

    Thanks for helping to clarify Google’s quality scores. I understand it better now.

    Reply

  26. avatar
    Frankie Says:
    June 13th, 2009 at 7:31 pm

    Great idea on exposing the secrets on how Google prices your clicks :)

    Reply

  27. avatar
    secret cash blueprint Says:
    June 17th, 2009 at 3:58 pm

    I find that if you include simple on page SEO like a blog, disclosure, privacy, and terms page, with a resources page that has unique content articles, then it usually does the trick with PPC quality score.

    Great post though.

    Reply

  28. avatar
    Organic SEO Says:
    June 19th, 2009 at 10:19 pm

    Brilliant! The best ten minutes someone could ever spend, if they wanted to know about adwords.

    Reply

  29. avatar
    Michael Paske Says:
    July 9th, 2009 at 9:51 am

    that has helped a lot, but i have a few questions:

    1 – How do you know what your add rank is?
    2 – What CTR should you aim for?
    3 – For new addgroups, how long does it take for google to change the oiriginal QS?
    4 – If you have a bad performing addgroup, IE QS, what impact does this have on the other addgroups in your campaign?

    Michael

    Reply

  30. avatar
    He - Imcouple Says:
    July 24th, 2009 at 12:16 pm

    Hi michael,

    From my point of view to need to aim to the highest CTR your can get.

    I think that Google determines your QS for new adgroup after number of impression and in corresponding to your account history.

    Reply

  31. avatar
    Koyel Says:
    July 27th, 2009 at 5:49 pm

    Google’s policy is like weather, you can never predict when it changes! Anyway good writing.

    Reply

  32. avatar
    James Patterson Says:
    July 30th, 2009 at 11:31 am

    This is all well and good but unfortunate google is slapping a lot more affiliate marketers nowadays. Best thing to combat this is to delete your campaign and transfer everything to a new domain.

    Reply

  33. avatar
    Kobi Says:
    August 1st, 2009 at 7:10 am

    Adwords should be examined well, otherwise all your money would go for non-targeted-clicks, thus a big waste.

    Reply

  34. avatar
    porobir Das Says:
    August 3rd, 2009 at 10:48 am

    Yes you are right that Google AdWords no longer operates on a “highest bid wins” system but on a rather confusing and sometimes illusive set of quality criteria.

    Reply

  35. avatar
    Ucuz tatil Says:
    August 10th, 2009 at 11:29 pm

    Great idea on exposing the secrets on how Google prices your clicks :)

    Reply

  36. avatar
    Bob Tracz Says:
    October 9th, 2009 at 3:01 pm

    Well done and thanks for the insights.

    As confusing as PPC has become it’s important to remember that it’s focus is still on solving a problem.

    The success of SEM requires that you think like your prospect, identify the problem they want to solve or the dream they want to achieve and help them to solve that problem or achieve that dream with your solution. To that end choosing the right and the most affordable) “key”words is still the “key” behind a successful campaign.

    Reply

  37. avatar
    komik video Says:
    October 15th, 2009 at 2:58 pm

    I’m curious to know whether google will ever part with it’s strict CPC strategy and also allow people to be paid based on impressions

    Reply

  38. avatar
    Joseph McConellogue Says:
    October 16th, 2009 at 3:06 am

    Hey Dave,

    Great read on Google’s Quality Score formula. I agree with you 100% that QS requires an increase in CTR. One thing I’ve noticed that helps a lot is bidding aggressively for the first few week of a campaign to “artificially” increase CTR’s which in turn will increase the QS. Once the QS and CTR’s are high enough, you can begin to lower max cpc’s gradually without having a major impact on overall quality score or click through rates. It’s kind of a neat strategy that’s worked for both large and small budget campaigns.

    I’ve written a blog about optimizing CPC’s while not losing out on QS. I recommend that anyone interested in increasing Quality Score should have a read. Thanks :)

    Joseph McConellogue

    Reply

  39. avatar
    rajguru Says:
    October 27th, 2009 at 3:42 pm

    Its Very easy to understand in your simple English.Now its clear how Google’s quality scores happening,Its very helpful
    Thanks for this post! and can anyone tell me how to find out the fraud clicks and PTC sites.

    Reply

  40. avatar
    Latest Technology News Says:
    November 10th, 2009 at 12:14 pm

    Really most helpful post in respect of understanding the complex google scoring.
    man that’s really helpful for new arrivals in this field to grab something about AdWords.

    Reply

  41. avatar
    Tampa Bay Designs Says:
    November 25th, 2009 at 5:47 pm

    Adwords gives an overview of how quality score is calculated but its a bit vague if you dont understand ratios and percentages right off the bat. This will be an extremely helpful post to those who are just getting their feet wet i wish i had found it when i started my adwords/adsense campaigns

    Reply

  42. avatar
    WFH Says:
    February 23rd, 2010 at 8:55 am

    CTR that click through rate is important,because it is directly related to your cost of campign.It is the number of people clicking on your ad per 100 times it is visible to search people.Hence one should write such an ad campign so that people will be attracted to click on your ad,the more the CTR the less will be your cost per click

    Reply