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Regular readers of this blog know I have a lot of pet peeves related to paid search, but perhaps the largest is the fact that paid search management – the process and the software that supports it – is often referred to as ‘bid management’.

The use of the term bid management to summarize paid search management suggest a profound lack of understanding. Of course, many people genuinely think that’s what the discipline is called. They don’t really mean anything by it – they’re just repeating the phrase they heard.

My problem with the phrase is that it perpetuates a level of importance for bidding that is undeserved. For most paid search advertisers, bidding isn’t that important.

Putting Bids In Perspective

If you’re a good skier, sharp edges matter a lot. When you’re learning to ski, they hardly matter at all.

First you have to get comfortable just standing on skis, and then standing on them while sliding down the hill and riding over all kinds of terain. They you have to figure out what to do with the various parts of your body – ankles, knees, hips, arms, head – while all this sliding is going on. You have to learn to initiate and complete turns, and at some point you start subtly shifting your weight through the process.

Until you reach a certain point, it hardly matters if your skis are slabs of wood from a garden fence. As long as they slide downhill, they’re fine. But eventually your skills reach the point that their length, flex pattern, and ultimately fine tuning points like sharpness are both noticable and impactful. But only after a long list of much more fundamental issues have been resolved.

Paid search bids are like that. Initially, any bid that gets your keyword shown in the top 2/3 of the first page is fine. After that, it’s not worth worrying about it again until a lot of other more important skills are mastered, tasks are completed, and data is gathered. When they are, and only then, is it worth allocating serious time to bidding, and even attempting an intense and sophisticated approach to bidding.

Spending a lot of time on bidding when the other attributes of each keyword aren’t in very good shape yet is like sharpening your skis when you still fall down a lot. It’s not the place you need work.

First Things First

This ‘sharp edges’ analogy actually doesn’t even do justice to the problem with premature bidding.

Generally speaking, sharpening edges actually improves ski performance and have a very small chance of actually causing problems for even a beginning skier.

But bids actually cannot be reasonably be calculated for keywords that are not haven’t already been properly tuned in terms of organization and negatives and match types and ad copy. The data surrounding these keywords is garbage data – putting that into even a very clever bid algorithm or calculation results in a garbage bid suggestion.

So attempting to bid prematurely results in inappropriate bids which will *cause* poor performance and potentially skew the data that will be used to drive future decisions.

Bidding on a weak foundation isn’t just wasteful, it can be harmful. It produces bad numbers based on incorrect assumptions that serve to drive you further away from optimal future results.

The Fairy Tale

The idea that paid search success is driven by keywords and bids hasn’t been true for many years, but it remains the dominant narrative of our industry. Don’t fall for it.

In upcoming posts we’ll examine why you should bid no keyword before its time, the steps you can take to prepare keywords for bidding, the tests that will tell you when a keyword is bid-ready, and then finally we’ll take a long hard look at how to bid once it is actually time to do so.

Bidding is the magic elixer of paid search.

It’s the solution to any problem, the driver of all success and the cause of all failure. Once you have the right keywords, bidding is the main activity of paid search management.

It’s critical to get your bids right. If your bids aren’t properly set, intelligently managed, and constantly cultivated it’s effectively impossible to succeed at paid search.

This all is common knowledge.

And it’s all untrue.

The idea that bidding is important/critical/central to paid search is based on several assumptions:

• We have good data on which to make bid decisions.
• The data we have from the past is predictive of the future.
• Our algorithms are able to take this good and predictive data and recommend a better bid
• The effect of a bid change is clear and direct

Let’s look at those one at a time.

Lipstick On A Pig

Keywords are the false gods of paid search, as we discussed earlier, but they have another problem too: keyword metrics aren’t really reporting on the keyword itself, but rather on the combination of the keyword and all the options that are set around it.

Click-through rates and conversion rates, for example, are the result of how targeted the search queries were based on the match type used and the quality score received, how appropriate the ad copy was for those queries, and how persuasive the landing page and offer were to the people who clicked through.

That same keyword matched to different queries, with different ad copy, and different landing pages and offers would/could perform much differently. It’s shorthand to say that the keyword had a 2% conversion rate – it was really the entire advertising program built around the keyword that earned that result.

Yet bid algorithms, with our approval, make bid decisions as if the keyword metrics were much more conclusive than they really are. Suppose the queries change (which they do every day) or the ad copy is rewritten or tested (which it should be several times within the 30 day window used for most bid decisions). Isn’t it kinda kookie to ignore these variations and just pretend that the data is clear or reliable?

In ‘21 Secrets‘ I talk about getting keywords ‘bid ready’. The idea is to create a stable and functional environment around the keyword, to deliver better and more stable data, before putting much effort into bidding.

As the book points out, worrying about bidding on keywords before they’re ‘bid-ready’ is a text-book case of garbage in, garbage out.

Past Results May Not Suggest Future Performance

So if our keywords aren’t bid-ready the data on our keywords is pretty dirty. And in most cases (probably 80% of active keywords) the data is also really sparce. There just aren’t many clicks or conversions on most keywords over a week or even month long period.

Predicting the future based on sparce data about the past is extremely difficult.

And even is there is plenty of data, it’s a pretty big assumption to think that last week is gonna be like next week.

The world and our businesses don’t operate at a steady state. So even if we’re not in a strictly cyclical business – where summer dresses have a rise and fall – there are all kinds of time-based or external factors from competitor promotions to weather to holidays to news events.

One only has to look at a performance trend report of any keyword – on CTR, conversion rate, even impressions – to see that if you picked any one period from the past and projected forward as if that period was representative, you would have misjudged a bunch of what in fact happened later. Yet that’s what the bid algo’s do.

It’s hard not to believe numbers – as pointed out in the recent post on averages – especially when we’re working so hard to get them. But it’s not really that the numbers are lying, we’re just reading more into them then they can accurately provide.

The Smart Black Box or The Perfect Rube Goldberg

But forget all of that – take all the imperfect data, assume the past predicts the future in ways it probably doesn’t, decide which and how much data to consider (another massive black hole we’ll skip over), and hand it over to your bid algorithm for analysis and a recommendation.

There are all kinds of bid algorithms. Some use simple math while others rely on very complex mathematics.

There are also all bid rule systems (which differ from algorithms) and base decisions on a series of measured factors and nested If/Then/Else criteria.

Few or none of these take into account that the data they’re based on may be flawed or even terrible.

All of them ignore dozens or perhaps hundreds of variables and factors that almost anyone would agree clearly effect ‘the right bid’.

Regardless, they do their best and out comes a new bid recommendation. Good luck with that.

Why Does The Garage Go Up When I Flush This Toilet?

What does raising (or lowering) your bid mean anyway? The relationship is not simple nor direct.

We know how bid connects to Ad Rank (Secret Truth #9) and how Quality Score impacts bidding (Secret Truth #10). Together these explain that what we’re willing to pay (our Max CPC or Bid) is only indirectly related to our the amount we do pay (our actual or average CPC).

And many other factors are at play:

• In some cases, our actual cost-per-click is far below our bid. In other cases, our cost-per-click is consuming 100% of our bid.
• If we change our bid but our position (ok, average position) doesn’t change, what effect did the bid change really have?
• Quality score is unique to every keyword-text ad combo, changes per geography, is influenced by the query, and evolves over time.
• Raising a keyword bid also expands the scope of matched queries for which you can enter the auction and earn sufficient ad rank to appear. So like butterfly wings changing your bid alters the environment you were trying to control or effect.

I could go on. And yet just about every bid algorithm I’m aware of ignores – all this and more.

It’s hard to shake the notion that bid up = pay more = higher position, but strictly speaking it’s far from that simple.

The Twenty Percent Solution

So what is an advertiser to do? Two things:

1) Spend your time organizing and optimizing your campaigns and keywords before you worry much about bidding. As the 21 Truths in this series highlight, there are a lot of ways to impact your results that are directly within your control. Master them.
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2) Think about bidding as having *at most* a 10-20% impact on your success. Bids interact with keywords and match types and quality scores and text ads and landing pages and everything else. Treat them as part of the system.

It was via Brad Geddes via David Szetela that I first heard the significance of bidding put into its place with these kind of numbers. I’m pretty sure I later saw Dennis Yu give a clever talk and example that drove home the same point. I’m sure others have said it as well.

There is no way to say whether bidding in general a 5% factor or a 45% factor – it doesn’t matter and it certainly varies from keyword to keyword.

But what is clear is that for even the best bid algorithms or rules or strategies to do their job, they must be applied to well designed, managed, and optimized campaigns and keywords.

• A good bid on a bad keyword (or based on bad keyword data) leads to a bad result.
• A good bid on a good keyword-system plays an important role and can absolutely make or save you money.

Bidding Is Important

This post wasn’t intended as bid-bashing. As the book says, I believe you should spend a lot of time on bidding after you’ve spent a lot of time on everything else.

But bidding is very often over-emphasised, mis-represented, and mis-prioritized.

The right way to bid, the right algorithms, the role of rules, the solution to sparce data, the implications of time, the way to factor in all the factors – these are all topics for another time and place.

Until then, make sure your keywords are ready before you set or manipulate their bids. And have reasonable expectations for the bids and bid changes you do make. They’re doing the best they can, but the available information and state of the technology limits severely limit their potential.

What Do You Think?

This blog post is part of a series extending and amplifying the ideas in our free ebook ’21 Secret Truths of High-Resolution PPC’.

What they’re saying: “Everything you know about AdWords is the basics Google wanted you to know. Just enough to get you hooked. But what if there was fundamental secrets that they neglected to share? Would you want to know them? Now you can! 21 Secrets Truths is what you must read, no, act on, before your competitors do.”

- Bryan Eisenberg Conversion Expert and New York Times Best-Selling Author ’.

Comment or Question? Leave It Here!

The Max CPC and quality score of a keyword determine its position, and position and quality score drive actual CPC. So exactly what effect does quality score have on cost?

We first answered this question one year ago, in the now famous ‘Economics of Quality Score‘ post. (This has since become the most visited page in the history of this blog.) You should go read this now if you haven’t already.

The central chart from that article shows the percentage discount or penalty you pay for every click based on your quality score.

If you know how many of your keywords are receiving each quality score, and the amount of your spend on each, it’s easy to use this data to calculate the total cost of poor quality scores, savings from great quality scores, and the net cost to your account.

Incidentally, ClickEquations provides this as a default report – isn’t that handy?

This Is Probably True

The only caveat to these calculations is the little-known-fact that quality score IS NOT a number between 1 and 10.

Google reports quality score to us mere mortal advertisers using that scale, but in the great AdWords super-computer a wider range of values is used – so your actual quality score may be 37 or even 68.2394.

We don’t know the range of numbers they use, the number of digits of precision, nor the relationship of one score to another.

And while this isn’t a secret truth, the fact is that I’m not much of a mathematician. So at the risk of public scrutiny and embarrasement, here’s the logic that lead to the above quality score impact calculations – feel free to issue corrections and admonishments in the comments:

CPC is calculated by dividing the ad rank of the advertiser below you by the quality score of the advertising keyword. The table was created by calculating the difference between dividing X by 7 and dividing X by 8. This difference, it turns out, is consistent regardless of what X is equal to.

Therefore, if quality scores were really whole numbers between 1 and 10, the chart above should be accurate.

Since they’re not, we don’t know (at least I don’t) the impact of a different range of quality score numbers which act as divisors. If a perfect quality score is really 83 and not 10, and a very good quality score is really 64 and not 9, there would be a difference in the percentage impact to CPC of earning a perfect quality score versus and very good one.

The assumption made in publishing these numbers as they are (which was disclosed) is that the real levels are proportionally similar. That could be wrong. Which means that the discounts and penalties on the extremes could be more or less. There is no way – short of a Google announcement – of knowing.

I believe the numbers to be directionally true. Perhaps as Jim Sterne said about web analytics in general, they’re ‘true but not accurate’.

What Is True

The details probably don’t matter anyway. Quality score does in fact apply as a discount or a penalty to your CPCs. And whatever the numbers, the farther your quality score is from the mean, the more severe its impact.

What matters is that we realize that high quality scores save us money (and get your ads shown more frequently and in higher positions) and that low quality scores cost us money (and result in less ad display and lower positions). In terms of data, everything after that are merely interesting.

In terms of action, we need to use that knowledge to drive our actions. We want to be aware of our keyword quality scores, and manage them, based on the fact that they drive our placement and to a very large degree our costs.

What Do You Think?

This blog post is part of a series extending and amplifying the ideas in our free ebook ’21 Secret Truths of High-Resolution PPC’.

What they’re saying: “The glory of paid search is hyper relevance and how absolutely data driven it is. If your goal is to be the best you can be at paid search, then your path goes through this book. When Craig talks I listen, mesmerized. You should too because being wise is great.”

- Avinash Kaushik Best-Selling Author ’.

Download Your Copy Today
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The AdWords auction is not a purely economic auction. If it were the high bidder would always win.

But in the AdWords auction the high bidder can wind up in 1st, 3rd, or 5th position – or even wind up out of the game with nothing.

Imagine a new kind of eBay auction; one where you could browse for a searcher or search query you wanted to have see your ad, and enter a bid. The auction would go on for a while – maybe a few hours – and you would even be notified when you were or were not the high bidder.

Like many eBay auctions there would be some jockying for position as the end nears. First you’re you’re the high bidder, then you aren’t, and then you are again.

Now pretend that as time expires, it turns out you were in fact the high bidder. But just before the display updates to say ‘You’ve Won’, a funny thing happens: eBay applies a secret multiplier to everyone’s bid. Some bids are multipled by 3, while others are multiplied by .3. The ranking order of the results is completely transformed.

You – the ‘high bidder’ – winds up in 3rd place. Someone with a rather low bid vaults to the top and they’re declared the winner. They pay only a fraction of what you had offered and yet win the auction and claim the prize.

If you were bidding in these kinds of ebay auctions, once you understood the game, would you focus purely on your bid?

Wouldn’t you want to learn all you could about the secret multipier and try in influence that? Wouldn’t you feel a little silly just bidding in earnest as if there were a direct relationship between your bid and the result?

Ignoring The Secret Number

Yet make no mistake, this is how the AdWords auction works. Everyone bids in the same currency (effectively) but that bid is then transformed by a secret number before the winner (or rankings in this case) is declared.

The secret number, in this case, is quality score.

Your bid is not multiplied by quality score, but quality score transforms the results of your bid none-the-less.

To see the actual way bids are calculated, read Secret Truth #10 in the book.
(Note: the download sign-up will have some downtime today, 3/27, sorry)

Bids impact, but don’t drive, CPC. Repeat that to yourself a few times. “My bid does not drive my CPC – My bid is only one factor that impacts my CPC.”

My View of Bidding

I’ll admit it. I kinda have a chip on my shoulder about bidding.

I’m not a big fan of over-simplification to begin with (hence the whole ‘high-resolution’ thing) and with bidding there are only two modes – over-simplified and mind-bendingly complicated. Guess which one most everyone chooses?

As described earlier, the idea of bidding-for-position is obsolete and inaccurate. And now we see that bidding does not directly define CPC.

Bids indicate the maximum amount you want to pay for any single click. But they’re only one factor in the determination of your ad position, and beyond that they’re not a factor in the calculation of CPC.

None of this is to say that bids don’t matter. They matter a lot. They have an impact – changing them has an impact and not changing them has an impact.

Plus, bids are concrete. Bids are accessible. Bids are easy to understand, even if they summarize or stand for something that on further inspection isn’t entirely true.

What Bids Do and Don’t Do

There are four key steps in the AdWords Auction. Let’s examine the role your bid plays in each:

1. When someone executes a search, quality score is calculated for the keywords in your account which may be eligible for the auction. Bid plays no role in the calculation.
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2. AdWords determines whether or not your ad (via your keyword) is eligible to be in the auction. Bids are a direct factor, because there is (despite the retirement last year of the Minimum Bid metric) a minimum bid to trigger display for any particular query. This is by no means the only eligibility requirement.
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3. AdWords calculates Ad Rank to determine your position in the results. Bid is direct factor, as discussed in Secret Truth #9.
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4. CPC is calculated to define how much you’ll pay if the ad is clicked. Bid isn’t involved beyond via the role it played in the deciding your Ad Rank. Really this is a Quality Score driven issue.

Putting Bids In Their Place

The punchline is that bid management and quality score management should, at worst, get equal attention in the process of managing paid search.

A year or two ago, almost nobody was talking about let alone working on quality score. Now the topic gets a lot of attention, but the confusion remains thick and the specific action steps are often not well defined. Quality score reporting has improved dramatically, but there still is a lot of information that we’re missing. We’re making progress, but there remains a long way to go.

There are two more Secret Truths concerning quality score, and two more concerning bidding, so we’ll cover more specific ground in those sections of the book and in future posts in this series.

Earlier I asked you to stop thinking about position purely as a result of bidding. Here I’m suggesting that you also stop thinking about cost-per-click as a direct bid result as well. These shifts will help you to have reasonable expectations for bidding, and to remember to consider and pay appropriate attention to qualty score in order achieve your position and cost related goals.

What Do You Think?

This blog post is part of a series extending and amplifying the ideas in our free ebook ’21 Secret Truths of High-Resolution PPC’.

What they’re saying: “Everything you know about AdWords is the basics Google wanted you to know. Just enough to get you hooked. But what if there was fundamental secrets that they neglected to share? Would you want to know them? Now you can! 21 Secrets Truths is what you must read, no, act on, before your competitors do.”

- Bryan Eisenberg Conversion Expert and New York Times Best-Selling Author ’.

Download Your Copy Today
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Another great misconception, or over-simplification, of paid search is the idea that you bid for position.

This is a deeply held belief. It seems hard to shake even for those who know better.

But as many people know, position is determined by both bid and quality score. Yet how many thousands of discussions, presentations, webinars, books, blog posts, software interfaces, and tweets talk about bidding for position as if it were the only factor?

How can you discuss bidding and position and not mention quality score? Ignorance and denial account for a lot of it. A yearning for simplicity is no doubt another factor. But saying it does not make it so.

• Position is determed by a number called Ad Rank
• Ad Rank is = bid x quality score
• Most keywords display at a huge range of positions in any given day or time period
• The quality score used in the calculation is unique to the query and go of the searcher
• Quality score is ONLY calculated when the query is identical to the keyword (match types and negatives don’t matter)
• The impact of landing page quality score is not considered AT ALL in calculating position
• There are special rules and requirements to jump to the ‘top’ from the ‘right’ (link)

These just some of the facts.

Yet today and every day, tens of thousands of paid search advertisers will look at their average positions, and their bids, and on those facts alone decide to change their bids. Or they’ll let algorithms that don’t consider quality score do the same.

In many cases it’s like filling the bucket faster instead of filling the hole.

Why Doesn’t Everyone Know This?

Many of the ‘Secret Truths’ make me wonder if the engines intentionally mislead advertisers. That probably could be the subject of a couple of good posts someday. Most of the time I come to the conclusion that they just tell a an over-simplified version of the truth, like most marketers do, and let everyone run with it in the wrong direction.

It’s easy to see why the engines like all the misconceptions about bidding, and position, and quality score. Every time you don’t understand they make more money. The fact that they didn’t intentionally mislead you is an awfully nice coincidence.

Why Doesn’t Everyone Act Accordingly?

What gets measured gets done. That’s a useful old saying for anyone in online marketing. Ad rank is not measured, or reported. That’s probably reason #1 that more PPC managers don’t obsess about it.

Bids are concrete and easy to change. It’s easy to understand spending more and spending less, and accepting that one buys more and the other buys less. Quality Score is a mystery wrapped in an enigma. We’ll visit those waters again in the next few posts.

The whole thing reminds me of the joke about looking for your keys where the light is rather than where you lost them. Bidding is clear and simple. Quality Score is confusing and hard. So lots of time is devoted to bidding.

The truth is that bid management and quality score management should have equal billing, and Position/CPC management should be recognized as being the result of doing both.

It starts with a new mindset: You don’t bid for position. You Ad Rank for position.

What Do You Think?

This blog post is part of a series extending and amplifying the ideas in our free ebook ’21 Secret Truths of High-Resolution PPC’.

What they’re saying: “Everything you know about AdWords is the basics Google wanted you to know. Just enough to get you hooked. But what if there was fundamental secrets that they neglected to share? Would you want to know them? Now you can! 21 Secrets Truths is what you must read, no, act on, before your competitors do.”

- Bryan Eisenberg Conversion Expert and New York Times Best-Selling Author ’.

Download Your Copy Today
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Bidding in paid search is generally not an event filled with a lot of confidence. One of the ‘lingering doubts’ that makes decisions hard and choices uncertain has always been keywords that have only managed to get low in the first page – positions 6-8 – and yet never hit whatever goals are set for them.

Even if they had a lot of impressions and a good number of clicks, it’s been hard to cut them loose, due to the nagging thought that ‘if they were only up higher, those better converting people would click them and everything would be alright.”

Or so we (at least I) always thought.

But as I was staring at a long list of keywords over the weekend, pondering bid strategies (yes, I know how to have fun) it occurred to me that Google’s recent claim that conversion rate don’t vary (much) by position should take this worry away. There really aren’t a higher class of frequent buyers to meet higher up the page.

It’s still a little hard to believe. But I’m trying.

For background on all this, check out the article I wrote on SearchEngineLand discussing the recent Google announcement.

When Google’s Hal Varian talks, we listen. We first met Mr. Varian – Chief Economist at Google – in his ‘Introduction to the Adwords Auction’ video and it sparked one of our most-read posts (The Economics of Quality Score) in which we took his information and used it to determine the financial of specific Quality Scores or Quality Score changes.

Last week Mr Varian spoke again, this time on the AdWords blog, but with equal import. He shared the fact that his team had studied the impact of position on conversion rate, and found that conversion rates were about the same no matter if your ads are run in position 1 or position 8.

Today SearchEngineLand published an article I wrote concerning the importance of this revelation.

While the video shared new truths that helped our understanding of Quality Score, this new information has impact almost entirely on bidding.

I’ve been spending a lot of time lately working to really understand bidding – I’ll admit it’s not something I’ve focused on before because it always seemed vastly over-rated as a factor in paid search success. I still believe bidding gets more than it’s share of attention in the PPC world, but for very different reasons than in the past.

Bidding is probably the most misunderstood component in a system full of misunderstood components. This is true because we bring assumptions about the role of bidding in an auction which turn out to be true in the modified ‘auction’ that Google and the other engines run.

The result is often wasted money, but more often it is deliberate actions which have virtually no chance of accomplishing their objectives. We change bids as if raising them will push our keywords up and lowering them will drop them down. The problem is it’s not that simple.

As the the SearchEngineLand article describes, Mr. Varian is doing us all a huge favor by clarifying how various elements of the AdWords auction and system really work. But we’ve got a long way to go…

Our New Facebook Page is looking for fans! If you’re a serious paid search marketer and enjoy this blog or like ClickEquations, please ‘fan up’ by clicking the button in the Facebook widget in the far right column.

The fall-out from Google’s Hal Varian Quality Score Video continues.

One early impact was finally understanding exactly how quality score impacts your cost-per-click.

A more interesting idea to get your head around: Your bid is not used in the calculation of your cost-per-click.

Isn’t that amazing?

How CPC is determined
Using the information from the Google video, and some other Google-documented facts, let’s look at the exact sequence of steps that determine the position and cost-per-click of your ad.

1. Joe Smith types his search query into Google and clicks ‘Search’
2. Google and (using their ‘infinite wisdom’ machine) decide which advertisers have keywords and match types and budgets and geo-targeted day-parts that make their ads eligible to be shown.
3. Google calculates, in real-time, the Quality Score for each eligible keyword.
4. Google multiplies Quality Score x MaxCPC for each eligible keyword to determine the Ad Rank of each keyword.
5. The eligible keywords are sorted by Ad-Rank, highest to lowest.
6. Starting from the top of the list, the CPC for each keyword is calculated by taking the Ad Rank of KW below it, and dividing it by the KW’s QS
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   So if my Ad Rank is 50 and my QS=7, and the following keyword’s Ad Rank is 45, my CPC = 45/7 = $6.42.

Bid Is Not A Direct Factor
Notice in Step 6: The bid was not a direct factor in the computation of the cost-per-click. It has a major influence, but it’s indirect, by determining your Ad Rank, which determines which keyword your rank above and that keywords rank is used to determine your CPC (by dividing by your quality score).

The ramification of this, beyond being a cool way to trip up friends at PPC cocktail parties, is that we have to rethink the idea of changing bids to change our costs or positions. There is an effect and relationship, but it is far less direct that we typically think.

Additional Steps
Just to finalize, there are some steps after the above sequence before the entire process is complete.

1. For the last keyword in the list, Google uses some minimum required bid to determine the price.
2. There is a minimum CPC below which ads will not appear – so not every keyword on the original list is displayed. Google decides this CPC, and perhaps how many ads they want to appear. The point is that some (or many) eligible keyword’s ads are not shown.
3. After the rank and price is set, Google checks the MaxCPC of each KW against the MinBid required for a TOP position (ads that appear over the organic listings rather than on the right) and may move some ads to the TOP. Note that this decision is based on MaxCPC not CPC, and an ad in Position 4 may jump over an ad in Position 3 to get to the top if it had a higher MaxCPC.

PS: I’m hard at work on my way-behind-schedule ebook ‘High Resolution PPC’. If you like this kind of how-it-really-works thinking about paid search, I think you’ll enjoy the book. Sign up now and we’ll alert you as soon as I can finish and you can download.

Because you can bid less and still have your ads shown on the first page.

In my experience it isn’t unusual to see the following:

A Portion of The Keyword Report from ClickEquations

On the top line we see a keyword with a FPBE of $1.93, a MaxCPC of $1.50, and an AvePos of 2.82 (clearly on the first page). And we see a healthy impression count. It seems like something doesn’t add up.

I can only surmise (I have no direct information from Google on this) that this proves it really is an estimate. The actual bid required to be on the first page varies on a query-by-query basis. (Our post on the Quality Score discount or penalty.)

This makes sense given what we now know about how Ad Rank is calculated and the fact this is done in real-time for every query. So for each search Google:

1. Calculates the Quality Score of each bidder, then
2. Calculates their Ad Rank to determine position, then
3. Determines price based on the Ad-Rank and Quality Score, then
4. Figures out if any ads are eligible to get a Top Position, then sometimes
5. Decides how many ads they want to show

So there are two chances for your ad to not appear on the first page:

1. Your Ad Rank is too low to earn a spot on the first page.
   This (again) is Bid x Quality Score so you have to variables to work on to fix this.
2. Google limits the number of ads they display, even though there are more bidders.

What This Means For Bidding and First Page Bid Estimate
You shouldn’t feel compelled to bid all the way up to or past the FPBE number. Check your Average Position, and Impression counts before making a decision.

The effect of seeing the First Page Bid Estimate is to feel compelled to raise your bid to hit it – at least. That might be a good idea, it might not, and it may not be necessary (assuming your goal is a page 1 appearance with 100% Impression Share).

Test the impact of bids around the FPBE on both your position and impression count – it’s possible you’re below but losing very few impressions.

What Else It Means
Google is still hiding too much from advertisers.

The move to First Page Bid Estimate was a positive one, but we’re still not told:

• How they decide how many ads to show for any given query,
• How they establish minimum bids for a particular query (the price the lowest appearing person pays)
• How they determine the bid requirements of a Top Position (and what it is for any particular keyword or query)
• And our only clue about any of this – Impression Share – is still available at the Campaign Level only.

We’re left guessing and testing when we’re rather be considering and deciding.

NOTE: This is the 2nd post in a series. The first one is here.