Is bid price the only factor that controls PPC position?
Sadly not! Way back into ancient history that used to be the case with Yahoo! Paid search (formerly Overture, and before that GoTo), but now all the search engines apply "quality" filters to their search advertising algorithms.
Now the position your ads appear in is controlled by sophisticated algorithms applied to the ad 'auction'.
The search engines argue that their AI driven systems are designed to deliver the best results for advertisers, but it's important to remember that for all their altruistic "do no evil" rhetoric, Google (and the other search engines) rely on advertising revenue to survive, and their systems over the last few years have been honed to deliver the best possible return for THEM from a page of advertising, and not necessarily to deliver you, the advertiser, the best return.
That doesn't mean that their algorithms aren't working well for you as well, but blindly accepting their 'recommendations' is generally a good way to ramp up your spend without necessarily gaining as much benefit for yourself.
The key for efficient management of your budget is to understand how best to use their algorithms to your best advantage. Where your ads appear is based on a "quality" score - that's the primary mechanism for giving preference to some ads in favour of others. In it's most simplistic form, this works by calculating the return on individual ads: clicks x bid = return.*
For example, compare two ads: #1 delivers 100 clicks at £0.20, and #2 50 clicks at £0.30
100 x .20 = £20 return
50 x .30 = £15 return
Despite ad# 2 bidding 50% more than ad# 1, which do you think gets delivered more? Of course it's ad #1, as this delivers the best return to the search engine. This is justified on the basis that if more people click on the ad, then it must be more relevant and therefore "better". Of course this may well be true - clearly if more people click on one ad over another it must have more appeal.
From the ad#1 advertiser's perspective this is great - a win win scenario for both the advertiser and Google, twice as much traffic for only 50% more.
But there are other bidding models to consider as well where the cost per click is calculated by the number of conversions, a conversion being some form of desired action taken by the visitor such as making a purchase, registering, or even simply spending a specified time on your site. With these bidding models you do not set a target cost per click, but a target CPA (cost per aquisition), leaving the algorithm to determine the 'best' position for your ads. BUT... set too low a CPA, and of course you can be outbid by competitors, and your ads will appear less frequently and or in a lower position. Google et all favouring their own pockets again!
Managing pay-per-click campaigns is now quite a complex business to make sure you are getting the right return.
If you need help with your PPC campaign management, request a free, no-obligation consultation
The actual calculation according to Google is Click Cost x Quality Score. The Quality Score is made up of a number of factors including relevancy of the search term to the content of the target landing page, but our practical experience indicates that click rate (and consequently Google's yield) is the most dominant factor.