Better CTR means lower CPC + Higher Position. Here is how

Recently I was being asked what is the effect of CTR on the overall CPC and Quality score..

Let me try Answering this for Digitalpoint Fellas with a very basic approach without dealing with complicated Adwords jargon.

Let's say there are 2 advertisers bidding for same keyword. Let's assume the keyword in this example is "Human hair wigs" .

Advertiser A (Ramesh) is bidding 1$ cent for the click.
Advertiser B (Suresh) is bidding just 50 cent for the click.

Throughout the day 200 people searched for the term and which triggered the ads for Ramesh and Suresh.. Hope it's clear so far, here comes the twist..


Advertiser A (Ramesh) is having a crappy not so relevant ad and thus getting a click through rate of just 1%

Advertiser B (Suresh) is a pro and he knows his stuff so he managed to get a CTR of 3% for the same keyword.


Now at the end of the day, out of 200 Impressions let's calculate how much money Google made out of these 2 guys..


Advertiser A : At 1% CTR Ramesh got 2 clicks giving Google 2$ (Clicks*bid) in revenue.

Advertiser B : At 3% CTR Suresh manged to get 6 Clicks, giving Google 3$ (50 cent * 6) in revenue.


Now what you think ? For Google what is more profitable and whom should he rewarded for the good job ? in this case a reward is Better Position and lower CPC.

Quality score and everything else is fine at it's point but if you like to lower your CPC the first thing you should look at is how your ad is targeted ( I mean relevancy with the keyword/adgroup). If your ad is related to the keyword ( Hintynamic Keyword insertion and so on) and gets a better CTR you will get lower CPC and high Position.

An example image might shade more light on my theory for a low budget account I worked with recently (Pay attention to the CTR CPC and Position columns)




PS : All other technical terms which are related to Ad rank Quality score and Realtime auctions are indeed true , I just tried to explain it for a not so Adwords pro , Rather from a Business owner's prospective.. .

 

sir i have a problem can you plz help me, i have a blog and i have 5000 daily page views, my CTR is about %7, i am worried, is my adsense account is safe with 7% CTR or it is in risk? plz help me.