Before going to “how google calculate the costing”, you have to understand the Google Ad Auction.
Whenever a ad appear in google search page, it goes through ad auction. Ad uction is a process that decides which ads will appear and in which order. But it does not mean that the highest bidder will always be on top. Here are some interesting facts on google adwords.
- David searches for “Flower Shop”
- Ads are whittled down:
– AdWords program will find out all ads whose keywords match the phrase “Flower Shop” closely enough.
– From that set of matching ads, the system will ignore the ads which are aren’t eligible, such as ads that target a different country or are disapproved.
- The remaining ads will be listed on the page based on a formula called Ad Rank.
Ad Rank is a combination of bid amount, the quality of your ads and landing page, and the expected impact of extensions and other ad formats.
- Ads Appear: David can see the relevant ads and order flowers.
* Now come-back to the main topic “How Google calculate the costing for adwords.”
Adwords never fix any minimum amount that you have to spent. You can set your daily budget to spend and choose how will you spend the amount. Adwords gives complete freedom to control over your advertising costs.
As I explained above, whenever you search something on google, adwords run the ad auction to determine the suitable ads to show with the ranking. If you want to place your ad in this auction, then first you have to set your goals (Such as getting clicks, impressions, or conversions.) and choose an appropriate bidding strategy or how do you want to bid.
CPC or Cost-Per-Click bid: You can choose this bidding strategy targeting to drive traffic to your website. CPC bidding focus on clicks on your ads.
vCPM or cost-per-thousand viewable impressions bid: You can choose this bidding strategy for branding or to increase awareness of your brand. This strategy focus on viewable impressions, or the number of times your ad shows in a viewable position and you can only apply this bidding on Display Network campaigns.
CPA or cost-per-acquisition bid: CPA bidding method is for the AdWords advertisers who are eager for conversions like purchase, signups or leads. This strategy focus on visitors to take a specific action (Like: filling contact us form, Sign up, purchasing etc.) on your website after clicking on one of your ads.
As mentioned on Google adwords help center, “If you use the CPC bidding strategy, the amount you’re charged per click depends in part on the maximum cost-per-click bid you set in your account, also called “max CPC” bid. This represents the highest amount that you’re willing to pay for a click on your ad (unless you’re setting bid adjustments, or using Enhanced CPC). In fact, the most you’ll pay is what’s minimally required to hold your ad position and any ad formats shown with your ad (including any applicable service fees that may apply to Display Network campaigns). So you’ll often pay less than your maximum bid. The actual amount you pay is called your actual CPC.”