How costs are calculated in AdWords

  • AdWords gives you control over your advertising costs.
  • There's no minimum amount that you have to spend. Instead, you set an average daily budget and choose how you'll spend your money.

Choosing a bidding strategy based on your goals

Every time someone searches on Google, AdWords runs an auction to determine the ads that show on the search results page, and their rank on the page. To place your ads in this auction, you first have to choose how you'd like to bid. Try choosing a bidding strategy based on your goals, like whether you want to focus on getting clicks, impressions, or conversions.

Click on ad Focus on clicks on your ads.

This is known as a cost-per-click, or CPC bid. We recommend the CPC bidding method if you want to drive traffic to your website.
Several ads Focus on impressions, or the number of times your ad shows.

This is known as a cost-per-impressions, or CPM bid. We recommend the CPM bidding method if you want to increase awareness of your brand. Note that CPM bidding is available for Display Network campaigns only.
Purchase confirmation page Focus on conversions, or when people take a specific action on your website after clicking on one of your ads.

This is known as a cost-per-acquisition, or CPA bid. We recommend the CPA bidding method for seasoned AdWords advertisers who are interested in conversions, like purchases or signups.

These are the different bidding strategies that you can set. Read the section below to learn more about choosing a bidding strategy.

AdWords essential

The auction: how Google decides which ads to show and their order

Choose a bidding strategy

Most people starting out in AdWords use the basic CPC bidding strategy, which means they accrue costs based on the number of clicks they get on their ads.

If you use the CPC bidding strategy, the amount you're charged per click depends in part on the maximum cost-per-click bid you set in your account, also called "max CPC" bid. This represents the highest amount that you're willing to pay for a click on your ad (unless you're setting bid adjustments, or using Enhanced CPC). In fact, the most you’ll pay is what’s minimally required to hold your ad position and any ad formats shown with your ad (including any applicable service fees that may apply to Display Network campaigns). So you'll often pay less than your maximum bid. The actual amount you pay is called your actual CPC.

Example

Let's say you've set a maximum CPC bid of US$1 for your ads. The most you'll pay when a customer clicks your ad is $1.

Control your costs

Now that you understand the basics of how costs work in AdWords, let's look at the ways you can control your costs:

Set a daily budget to control how much you spend

Note: Video instructions are up-to-date, but don't show the latest AdWords design.

Your daily budget is the amount you're willing to spend each day, on average, for each ad campaign in your account. The size of your budget is entirely up to you and you can edit this amount whenever you like.

Recall that when you set your max CPC bid, the amount you're charged for a click on your ad in a given auction could be less than your max. This means the amount you pay for a click on your ad - your actual CPC - will likely vary from auction to auction. Even though your actual CPCs may vary, your daily budget puts a limit on how much you can accrue in click costs from day to day.

Google may allow up to 20% more clicks in a day than your daily budget specifies. We call this overdelivery. Overdelivery can help make up for days when traffic is slow and your ads don't get as much exposure. However, in a given billing period, you're never charged more than the average number of days in a month (30.4) times your daily budget.

Example

If the budget for your ad campaign remains at $10 per day throughout an entire month, the maximum amount you would be charged for that campaign for that month is $304 ($10 x 30.4 average days per month). Recall that because of overdelivery, your daily cost might be more or less than your $10 daily budget on days when traffic is higher or slow.

Fine-tune your bids

If you use the cost-per-click bidding strategy, you set a maximum CPC bid for your ads. You can always lower your bid amount, but if you do, it might cause your ads to show up in a lower position on the first page of search results, to move from the top to the side or bottom position, or to be removed from the first page search results. In general, a higher maximum CPC bid can allow your ad to show at a higher position on the page.

Tip

Put your bidding on autopilot with automatic bidding. Set a daily budget, and AdWords will help adjust your CPC bids to receive the most possible clicks within your budget.

Get the most for your money

Google uses a measurement called Quality Score as an estimate of how relevant your ads, keywords, and landing page are to a person seeing your ad. Higher Quality Scores typically lead to lower costs and better ad positions.

How can you improve your Quality Score? Make sure that you choose high-quality keywords and create relevant ads. Here are a few tips to help you get started:

  • Choose keywords that are terms or phrases your customers would use to describe your products or services. High-quality, relevant keywords can help you reach the customer you want, when you want.
  • Create ads that are relevant to your keywords and what you're advertising. Relevant ads tend to earn more clicks, appear in a higher position, and bring you the most success.

Example

Let's say your maximum CPC bid is $2. Meanwhile, your competitor has a maximum CPC bid of $3 but the quality of his ads are below average. Because of the higher quality of your ads, your ad could actually show in a higher spot on the page, even though your bid is lower.

AdWords essential

Relevance: how ad quality affects your costs and performance

View your cost and payment history

Your AdWords account's Billing Summary page provides easy access to your billing information. View daily advertising costs, payment details, and much more. Learn more about how to access your billing information.

Tip

Try using Keyword Planner, a free AdWords tool, to help guide your decision on which bids and budgets to set. Keyword Planner shows you traffic estimates, like estimated clicks, to help you get an idea of how a keyword list might perform for a given bid and budget. Note that Keyword Planner gives you estimates for the Search Network only.

Still confused? Contact us to get help.