formula.bmpUpon logging into my AdWords accounts this morning, I was greeted with an alert: “Coming Soon: Improvement to the Top Ad Placement Formula.” Quickly thereafter I found the official FAQ and AdWords Blog announcement to fill in the gaps. The current formula involves Quality Score and your actual CPC. Google feels that this leaves you, the advertiser, without much control over which of your ads make it into the top positions. The new formula will still consider Quality Score, but it will instead look at maximum CPC for pricing.

How does this new formula change things? The way Google explains it is that in the current model, competitors who are below you in rank are also bidding lower then you. Thus lowering your actual CPC and limiting your ad’s chances of reaching the top positions. In the new model, Google will look at your maximum CPC. This would take your lower-bidding competitors out of the ranking equation and allow your higher quality (score) ads to elevate in the rankings on the basis of how much you’re willing to pay for each click.

The Lonely Marketer posted on this subject last night. Their first reaction was that this is another attempt by Google to ensure that “you’ll need to dish out more to hit the top spots.” While my gut tells me that this is more along the lines of an algorithmic, ad quality shift, I can’t help but agree with The Lonely Marketer on this. In the old model (actual CPC), advertisers were saving money by maxing out their position with a lower CPC. The new model gives Google license to charge you for each click at the maximum CPC under the guise of improving user quality and ad rank.

Leave me a comment and let me know what your thoughts are about Google’s intentions with this formula change!