1 Introduction - 2 Ad Rank - 3 Quality Score - 4 Advert Price
5 eCPM - 6 eCPM explained - 7 Statistics - 8 Position Weight
9 PW Simulator - 10 Smartpricing - 11 SP Simulator - 12 Adsense Simulator
Once the order of ads has been determined on your page, Google's Adsense system then calculates the CPC (the Cost Per Click, ie: the price the advertiser pays Google when a visitor clicks on the advert at your site). They promise advertisers that they will adjust prices downwards so they only have to pay a 'minimum amount'. They determine this price by asking: "what is the least amount of money you would have had to bid in order to stay in that Ad Rank position?".
For example, there are five slots in your tower with five advertisers. Therefore, even a bid of just 1c ($0.01) is going to get the advertiser onto the page, so the lowest slot in the tower is always going to pay 1c, irrespective of the amount bid.
The formula for calculating the amount paid by the advertiser is:
Cost Per Click | = $0.01 + |
The Ad Rank of the next advert down
|
For example, in the table on the previous page, Kim's ad was above Sarah's in the tower. Kim's payment is calculated using the following formula:
| Kim's Cost Per Click | = .01 + (Sarah's Ad Rank)/(Kim's Quality Score) |
| = .01 + 1 / 3 | |
| = .01 + .33 | |
| = .34 |
Although this is the basis of the calculation, there are many other factors that can make the calculation more complicated in practice: site targeted (or CPM) ads take the whole tower and therefore compete with all 5 ads at once; Google impose variable minimum bids on advertisers; advertisers can rotate different ads; there are often more advertisers than slots available, and there are probably many other factors that Google don't tell us about!
Many of these factors are not relevant to you, as a publisher, because you have no control over them. However, there is one major algorithm that you do need to be aware of, called smartpricing, which we'll look at later in the course. First, however, we'll look at how the adverts become income on your site, and how the above numbers are translated into your Adsense reports.