Instructor: In this video, I'm going to show you
how Google determines how much you pay per click.
Now, you have to remember that this
is different from what you set
as your maximum CPC from within your account.
Your maximum CPC is the maximum amount
of money you are willing to pay per click.
However, this isn't always what you're going to pay
for a click, so how is your cost per click calculated?
Your CPC is determined by the ad rank
of the advertiser below you divided by your quality score.
So, let's head over to another example auction
and I'll give you a live walkthrough
of how this works in the real world.
So, for the purpose of this training,
let's imagine it's a week later into the auction
and our five advertisers have updated their maximum CPCs.
And, as a result, their quality scores have changed as well,
which is extremely natural in the real world.
So, as you can see, Ben has a maximum CPC of $2.5.
Sally has $7, Tom has $2, Simon has $3,
and Louise has $9, so Ben has a ad rank of now 43.75.
Sally has a ad rank of 21, and Tom is just behind Sally
in position three with an ad rank of 20.
Simon has a ad rank of 15,
and Louise has a ad rank of 9.
Meaning Ben has the highest ad rank
and, as a result, has the top ad position.
Simon has dropped down from position one
down to position four, so how does this look
when it comes to calculating the CPC?
So, like I said, to calculate the CPC,
you need to get the ad rank of the below advertiser
and divide it by your quality score.
So let's go ahead and calculate Ben's actual CPC.
So, Ben's CPC is going to be 21, as this is the ad rank
of the advertiser below him, which is Sally,
21 divided by his quality score, which is going to be 7.
So, 21 divided by 7 is going to be a CPC of $3.
Sally's CPC is going to be 20, which is Tom's ad rank,
the advertiser below her, divided by 3.
So, 20 divided by 3 is going to equate to a CPC of $6.
Tom's CPC is going to be 15 divided
by 10, which is a CPC of $1.50.
And Simon's CPC is going to be Louise's ad rank,
which is 9 divided by her quality score.
So 9 divided by 5 equals 1.88 so, as a result,
that is going to be Simon's CPC.
So, for Louise, as there is no advertiser below her,
Google is going to determine her CPC.
What's really good to see is that
in our example, the person in the top spot,
which is Ben, is not paying the most per click.
The person paying the most per click
is Sally in position two.
And the main reason why Sally is paying so much per click
is because she has a quality score of just three,
which is a lot worse than Ben's.
So, let's imagine Sally works really hard
on her AdWords account and her landing page,
and manages to increase her quality score from three to six.
And, as a result, her add rank now goes up to 42.
This means that she still has the second highest ad rank,
so remains in her current position.
However, her CPC now drops to almost half
and goes down to $3.3 which is a lot less cheaper
than her previous CPC of $6.
And she's managed to achieve this just
by improving her quality score, real powerful, right?
So in our auction, we have Tom in position three,
and then we have Simon below so, at present,
Tom is paying the lowest cost per click.
He is paying $1.5 and he has a quality score of 10.
So you may be thinking, "Right,
"Tom has the highest quality score possible
"as quality score is obviously out of 10.
"So, there's no way Tom can pay any less
"than $1 50 per click," well, if you think this
you would be wrong, as you have to remember,
your cost per click is determined by the ad rank
of the below advertiser divided by your quality score.
Meaning if Simon's quality score was to drop down
from five down to four, he would now have a ad rank of 12,
which means he stays in the four position,
as it's the fourth highest ad rank.
However, as his ad rank has now dropped down to 12,
however, that means Tom's actual CPC
is going to be 12 divided by 10, which is actually $1.20.
So Tom has managed to lower his cost per click
by literally doing nothing.
This is simply because Simon's quality score
has gone in the wrong direction.
Hopefully, this illustrates to you just
how important quality score is and just
how diverse the Google AdWords auction is.
Now, it's really important to know
that we can't actually see the ad rank
of the other advertisers in our auction.
So, there's no way to know what your maximum CPC
should be set at and so on, however, it's just
an example to give you an idea of just how diverse
the Google Ads Auction is, and what you have
to remember as well, as in this example,
Simon's quality score went down from five down to four.
So as a result, the amount he's going to pay per click
is going to go up as well because Simon's actual CPC
is now going to be 9 divided by 4, which is $2.22.
So, as you can see, there is quite a lot to consider
when it comes to determining how much
you actually pay per click.