There are several factors that determine the price of an ad on your website. The most important one is the niche of your website… To give you an example: The top paying niches include health (cancer, skin care, medical treatment), cars, business and travel. What also pays quite well are extremely targeted niche sites, such as a website about lawyers in New York or cosmetic surgery in San Francisco.

The reason for an higher payout if you own one of those niche sites is simple: If people click on your ad and then purchase something on the website (that is what ads are for) then the person who might get a sale will earn a lot. For example, fixing your finger in the USA costs around 100.000$. Let’s asume that your conversion rate is 0.1 percent (which is very low). Then the person who sells the finger fixing service can expect earnings per click of around 100$ (unrealistic, just an example). A click on an advertisement is quite worthy for him because he will make a lot of money with it. In other words, his return on investment is very high. Because of his high ROI he will pay a lot more for an advertisement than for example on a gaming site. Let’s say someone advertises for a computer game then he can expect around 50$ per sale. With a realistic conversion rate of 2 percent he will get 2 sales per hunded clicks. Now you have to consider his costs and everything so that he will perhaps make 5$ per sale. Divide the number by hundred and you have a realistic amount of what the pricing of an ad on your gaming site is: 5 cent per click. It is a little higher of course as I am making around 7 cent per click….

But how does google determine that price? They have algorithms which evaluate the ROI of the advertiser. Depending on the ROI they are setting the price of an advertisement. Advertisers can also bid on an ad which will also increase the pricing. The more advertisers are interested in that niche, the more they have to pay (simple: Offer/Request dependency). If you are the only one offering ads in your niche and there are hundreds of advertisers then all of them must bid and overbid each other for putting an ad on your webbsite. That also explains why extremely targeted niche sites pay so much more.

Now that you know the factors which determine the pricing of your ad you will probably want to know how you can actually increase your CPC. Once you optimized your CPC you will want to improve your click through rate for more clicks and consequently more money.

Always keep in mind that Google is not hiring the top-mathematicans every year to play billiard – they are improving their algorithms monthly. Better algorithms will get them morey money as well. If you are away of other factors then please let me know.