Google Moving to Google AdWords A Hands-On Guide for Premium Advertisers - Manual (Page 5)

But wait – there’s more
You set your maximum daily budget. AdWords enables you to determine how much
you want to spend each day by suggesting a daily spend level based on Google traffi c
history and the maximum CPC you specifi ed. You set your maximum daily budget,
and our ad system automatically ensures that over the course of your campaign you
never pay more than your average maximum daily budget.
Prices are automatically reduced. Google’s ad discounter automatically reduces
your actual CPC paid to the lowest amount needed to maintain your ad’s position
and to stay ahead of your competition.
We reward relevance. We know that a relevant experience brings search users
back again and again, which is why we measure ad relevance as clicks divided by
impressions. And we reward high CTR with an improved position on the page.
Ranking is dynamic. Google dynamically positions your ad on our pages as well as
those on our search and content partner sites according to this ranking formula:
maximum CPC bid x CTR. Ads that perform well appear higher up, and you can
never be locked out of the top position.
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