How CPC is REALLY calculated

Posted on by in Adwords

Google claims that the cost of advertising (CPC) using Adwords is a fixed calculation from when they

“combine the components of Quality Score, the max. CPC bid, and the expected impact of extensions and other ad formats to determine Ad Rank.”

Then as an advertiser your bid and subsequent placement is based on the results of that auction (Ad Rank).

However, over the last few years it has become clear that there is more at play than that. If we can assume that the impacts for quality score and competition  (the number of advertisers for that keyword) remains the same, then we can only assume that the final cost calculation is what is changing. If more advertisers are bidding, there is an increased competition, and the average CPC should rise or fall within a similar ratio.

I have been tracking the cost of advertising using Google Adwords for well over a 6 years now. You can find the raw data here. Using a basket of keywords that range from “Plumbing” to “Business Supplies”, we used Google’s Keyword tool to find the average CPC and the competition for over 90 different keywords.

In the very least, we can see from the data and the graph above that, for Australia, competition has declined by 8% but the cost of advertising has increased by 32%. So effectively fewer advertisers are spending more on their advertising.

You can read more on Adwords CPC here.

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