One factor the google ads system uses to calculate an ad’s actual cost-per-click (cpc) is the:

1. location targeting of the ad showing one position lower on the page
2. maximum CPC bid of the ad showing in the #1 position on the page
3. maximum CPC bid of the ad showing one position lower on the page
4. cost-per-thousand impressions (CPM) of the ad showing one position lower on the page

Correct Answer – maximum CPC bid of the ad showing one position lower on the page

Explanation –

Now you know that one factor the google ads system uses to calculate an ad’s actual cost-per-click (CPC) is the maximum CPC bid of the ad showing one position lower on the page. 

The maximum bid of an ad means the highest amount of money an advertiser is willing to pay for each click on the ad. Which ultimately turns out to be much lesser than the actual CPC. The actual CPC practically can be equal to or less than the maximum bid. 

Suppose there are two advertisers with an ad of the same quality and one of them bids US$2 for his ads, then the other one has to pay a little more than that amount(US$2) in order to rank higher in the search results and to maintain that position.

What Is Cost Per Click?

Cost-Per-Click (CPC) is a term that is related to the PPC campaign. CPC is a very meaningful term used in the context of search engine marketing. 

Cost Per Click or CPC means the amount of money an advertiser pays for each click he gets on his ads. A click on an ad simply means a traffic to the website. 

PPC campaigns are an effective way to boost huge traffic to your website and generate more leads for your business. This strategy is highly recommendable for those who want an impactful result in a short period of time. 

How Cost Per Click Is Calculated?

The maximum bid for an ad refers to the maximum amount of money an advertiser is willing to pay for each click on his ads. The actual CPC that he pays at the end is ultimately lesser than the maximum bid. 

There is an equation to calculate the actual Cost Per Click.

In this equation, you can see that the actual CPC that you pay for your ads is not completely on you, it depends on your competitor’s Ad Rank as well. In order to get the best result in your PPC campaign, you have to take care of the quality of your ads, their relevance to the query, your maximum bids, and your competitor’s rank. That’s how Google’s bidding systems work.

Conclusion – 

The actual CPC of an ad hugely depends on the maximum CPC bids of the ad showing one position lower on the page. And this is one factor that the Google ads system uses to calculate an ad’s actual CPC.

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