What, Exactly, Determines Your PPC Keyword Price?


It's a question that's asked more often then you might think. "What determines my pay-per-click keyword price?" The answer is most certainly not "Google" or another PPC search engine. Truth be told, this question is aptly answered by a quick lesson in PPC fundamentals. Your keyword price, or cost-per-click (CPC), is determined by a combination of your bidding strategy, keyword competition, Quality Score and a handful of other factors.

TIP: PPC terminology 101. While keyword price is a seemingly accurate descriptor, the more appropriate (and widely accepted) term is actually cost-per-click - aka CPC.
  • Your Keyword Bids: The most obvious determinant of your keywords' cost-per-click is in fact your actual bid! Google AdWords, Yahoo! Search Marketing and Microsoft adCenter all utilize a maximum CPC bid model for calculating ad position and ultimately your final cost-per-click. If you bid low, your keyword price will be low. If you bid high, your keyword price will potentially increase. Which brings me to...
  • Quality Score: What's a conversation about PPC without mention of the 800 lbs. gorilla in the proverbial paid search room. Quality Score is primarily a factor when advertising in Google AdWords, though both YSM and adCenter have their own similar quality initiatives. This post is about keyword price, so I'll save the nitty gritty on Quality Score for another post. A great Quality Score can allow you to rank your ads higher at lower CPC, and inversely a poor Quality Score will force you to increase bids to achieve higher ad position. Suffice it to say, Quality Score plays a *major* role in determining your keywords' price by influencing actual CPCs, estimating the first page bid thresholds you see in your AdWords account and affecting how high your ad will be ranked. (See also my post on the subject at Website Magazine.) Which brings me to...
    • Click-through Rate (CTR): Click-through Rate, and by association the relevance of your ad copy, affects your cost-per-click by directly affecting your Quality Score. Of all the variables that factor into Quality Score, CTR is hands down the strongest influencer. How does this tie back into your keyword price? Follow along with me if you will... Improve CTR and you'll improve Quality Score which will improve Ad Rank which eventually will lower your actual cost-per-click. Which brings me to...
    • Ad Rank/Ad Position: The core formula for Ad Rank is generally as follows: Quality Score X Maximum CPC Bid = Ad Rank. Ad Rank is technically a raw number that is used to calculate your actual ad position (other factors like Quality Score thresholds, etc., determine actual order). Your ad position will greatly affect your CTR. And as we already determined, CTR plays a big role in determining your actual cost-per-click! Did I mention that fluctuations in competition can affect your ad position? Which brings me to...
  • Competition: Competitors are like belly buttons - we've all got 'em. Recognize this fact and realize that the ever changing presence of competitors will greatly affect your bidding strategy, ad position, CTR and you guessed it - CPCs. The addition (or better yet, subtraction) of a strong competitor can be attributed to a myriad of variables, but most of us recognize the holiday shopping season as a major instigator of competitive fluctuations in PPC. Which brings me to...
  • Other Factors: Seasonality is huge in paid search advertising - and is something I feel doesn't get as much attention as it should. Regardless, seasonality will greatly affect your keyword price. Whether that be due to a new competitor entering your keyword market for the holiday's or an old foe increasing their bids for Christmas as expected - these changes will force you to make your own bid and ad changes to remain competitive. All of which circles back to your actual cost-per-click. Akin to seasonality, the general ebb and flow of pay-per-click (yes folks, it's true PPC traffic changes day to day) will also change your strategies affecting your cost-per-click.

Which brings me to... the conclusion of today's post! (OK, I promise I won't use a gimic like that next time I write.) My goal for today's post is that the next time you hear someone ask, "What determines my pay-per-click keyword price?" you'll have some informed answers to share. Your keyword bids, Quality Score, click-through rates and even your competitors all play a role in determining your actual CPC - aka your keyword price.

(More: Revisiting the Economics of Quality Score: Why QS Is Up to 200% More Valuable in 2013)

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PPC – ppc experts | SEO Mixer Blog
Oct 20, 2009

[...] What, Exactly, Determines Your PPC Keyword Price? | WordStream4 hours ago by jlee  Learn how your keyword bids, Quality Score, click-through rates and even your competitors all play in role in determining your actual cost-per-click (CPC) – aka your keyword price. [...]

Oct 20, 2009

Thanks John, I'm learning...

I will need more information on quality score before understanding the article fully.

I have managed a $4000 per month Google AdWords account for a client.

One of your lines caught my eye: "If you bid high, your keyword price will potentially increase.". I never saw this happen in our account to my best memory.

What I did see is that a daily campaign spend of $100 could "skid" to $125 or more if I didn't monitor it. So Google daily ad spend caps were not obeyed. Since my client wanted a $100 ad spend I would sometimes set the limit to $85 so that the daily ad spend would "skid" to $100.


PS: On a side note, I think everyone should monitor their brand name and/or model names on Google whether they use PPC or not. Even if Google practices "do no evil" its ad users certainly do bend the rules or the law with intellectual property violations and brand name poaching.

John Lee
Oct 20, 2009

Quality Score - there is a wealth of information out there. If you are doing PPC at any level on Google AdWords, you should make the effort to learn more about it as soon as possible.What I was getting at with the "keyword price will potentially increase" comment pertains to the potential of an increased Quality Score to actually lower your bids or keep them level despite increasing your maximum CPC bids (Quality Score rewards relevant advertisers with higher ad positions at lower CPCs).
As for your budget concerns, there's actually a valid explanation for what you're seeing in AdWords. Google looks at your daily budget as a fluid data point which they use to guage your overall spend throughout the course of a given month. So you set your daily campaign budget to $100, Google assumes that you intend to pay an estimated $3000 for that month. The AdWords system intends to meet that $3000 total throughout the 30 day period and assumes fluctuations in daily spend (both above and below your targeted budget). So, it isn't the system jacking around with you, it is trying to level you out for the month. And if you make knee-jerk budget decisions, this only confuses the AdWords system with potentially negative results.
Thanks for the comment!

PPC – ppc account | Hyper Affiliate Blog
Oct 20, 2009

[...] What, Exactly, Determines Your PPC Keyword Price? | WordStream16 hours ago by jlee  Learn how your keyword bids, Quality Score, click-through rates and even your competitors all play in role in determining your actual cost-per-click (CPC) – aka your keyword price. – [...]

PPC – twitter ppc | Hyper Affiliate Blog
Oct 21, 2009

[...] What, Exactly, Determines Your PPC Keyword Price? | WordStream19 Oct 2009 by jlee  Learn how your keyword bids, Quality Score, click-through rates and even your competitors all play in role in determining your actual cost-per-click (CPC) – aka your keyword price. – [...]

Adsurf Aidan
Oct 21, 2009

I'm finding so much confusion on this topic even amongst some PPC managers!

Clients too sometimes seem to think they can bid on the most tenuous keywords and get traffic at a low price, ...sigh

You then need to explain the whole QS thing which is really meant in their own interests.

Where Did Bakedwheat Web Go? | Bakedwheat Web Enterprises
Jan 13, 2010

[...] What, Exactly, Determines Your PPC Keyword Price? [...]

Feb 07, 2017

Hi, I am regional marketer and I am new in terms of learning Digital marketing.
I wonder why some markets have high CPC and others is relative lower with similar adv. words we place for different market.
Thanks a lots in advance to answer my questions.


Allen Finn
Feb 07, 2017

Hi, Joanne.

Different CPCs in different regions are attributable to a combination of competition and search volume.


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