Google Moving to Google AdWords A Hands-On Guide for Premium Advertisers - Manual (Page 17)

Google’s ranking system rewards well-targeted, relevant ads, so you can’t be locked
out of the top position as you could be in the ranking system based solely on price.
What is the actual CPC paid? Now that we know the rank of each ad, we can
determine the actual CPC paid by the advertisers.
Advertiser B has a rank of 0.72 and has earned the fi rst ad position. Google’s ad
discounter ensures that the CPC it must pay to maintain the fi rst ad position is just
a penny more than what it would have to pay to achieve its next competitor’s rank,
or 0.65.
We know that rank equals CPC times CTR, and we simply solve for CPC, which is
37 cents. (Actual CPC = .65 / 1.8% + 1 cent = 37 cents.)
Because Advertiser A is the second and last advertiser in this example, they simply
pay the minimum CPC: 5¢.
Daily budget
You establish a maximum daily budget at the campaign level. The higher your
budget, the more frequently your ads will be shown for your keywords. Our ad
system suggests a daily spend level based on Google’s traffi c history and the
maximum CPCs you specifi ed for your keywords, although you may change this
spend level at any time.
Traffi c and delivery fl uctuate from day to day, and your actual daily spend will vary
as well. For a given day, your campaign may be under budget or up to 20 percent
over budget. If you are over budget, our ad system automatically evens out delivery
so that your actual daily average never exceeds your maximum daily budget.
Advertiser CTR
Rank
(Max CPC bid x CTR)
Ad Position
Advertiser A 65¢ 1.0%
0.65
(65¢ x 1.0%)
2
Advertiser B 40¢ 1.8%
0.72
(40¢ x 1.8%)
1
Max
CPC Bid
15