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How is competition level of a keyword determined?

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# 1
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Let's say keyword A has a monthly estimated traffic volume (in the US) of 100,000, at a suggest bid of $3.50. A very similar keyword might be at 500,000 but at $1.00. How does that make sense? If a keyword gets more traffic is it not considered more competitive, hence a higher estimated bid?

 

Any insights into how CPCs are established would be appreciated.

2 Expert replyverified_user

Re: How is competition level of a keyword determined?

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# 2
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Hi Johnny,

 

In order to understand how Google actually calculates your actual cost per click I would suggest you read these couple of references inside Google's notes. Here they are:

https://support.google.com/adwords/answer/6297?hl=en

Let us know if that helps or not.

 

Nilesh

 

Re: How is competition level of a keyword determined?

Top Contributor
# 3
Top Contributor
Hi Johnny,

At the very first sight your logic would seem pretty reasonable to almost every one. What you are in fact not considering is historical user experience and user clicking habits. They are the most important factors for Google. If they had not cared for them, users would not have come to use their search engine by the millions. - To reduce the scope of this answer, you should know that some keywords (or rather search terms matching it) might be popular among users for reasons not associated with a commercial purpose. In such cases they may view your ad without clicking on it, or may click on your ad without converting. If they do not click, there is no revenue for Google, while if they do not convert there is no revenue for the advertiser. The latter may cap auction bids pretty much even if traffic is increased.

Best,
Lakatos

Re: How is competition level of a keyword determined?

Top Contributor
# 4
Top Contributor
Also - if there are 100,000 available impressions for one keyword and 500,000 for another then there are 5 times as many impressions available - thus the competition is less...

Re: How is competition level of a keyword determined?

[ Edited ]
Top Contributor
# 5
Top Contributor
Yup, correct, Steve. Much appreciated. I think Johnny did not consider advertisers' demand for those impressions. He simply figured if a keyword brings you more traffic it must be more valuable to you. (Which is not true either.)

How is competition level of a keyword determined?

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# 6
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So to sum Lakatos, the variances in CTRs & CVRs by vertical are attributing to this difference in suggested bids? For example if insurance keywords typically have low CTRs but CVRs that result in a net positive ROI, that drives up the competition level (hence some of the highest bids in all of Adwords).?

 

How is competition level of a keyword determined?

Top Contributor
# 7
Top Contributor

Sure, a positive historical ROI experience may boost advertisers' demand and competition level (among advertisers) to show ads for such searches.