PPC is basically an auction system, where advertisers bid on keywords in order to place their ad in the search results when people search on terms related to those keywords. However, it’s an auction where the highest bidder doesn’t always win – Google awards higher ad placements to advertisers with high-quality, relevant, well-organized ads and campaigns, not just those that bid the most money.
For illustration only, let's say I want to run an ad an am willing to pay $1 per click. My closest competitor is not willing to spend more than 50¢ per click. Google runs our ads and the 50¢ ad gets 10 clicks where as the $1 add only gets one. Google is going to display the 50¢ ad on top of the $1 add because more people are clicking the ad and Google is generating $5 for the 50¢ ad vs $1 for the $1 add. If the 50¢ advertiser sets a limit of $5 per day, once his had has been clicked 10 times, the ad will no longer display that day, moving the next best performing ad to the top of the page results.
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