In a move to stay ahead of the new Yahoo! Search Marketing PPC system, Google AdWords have announced a new bid formula to enable advertisers to take higher ranking positions within the sponsored results. According to Google, the change is "designed to improve the quality of our ad results, and to give you more control over achieving top ad placement".

The ranking position of an advert within the Google AdWords results is determined by the bid price and Quality Score, which is based on a number of criteria that Google uses to calculate this. The bid price actually results in an average Cost-Per-Click (CPC) for a search term, which is determined by advertisers bidding below your own bid price - so for example, although you might be bidding 50c for a term, if the next placed advertiser bids 25c, then your CPC will be 26c.

However, what Google is saying is that these lower advertiser bids drag your own CPC down, which means that you may not be able to achieve a higher ranking. Therefore the new changes mean that your maximum bid price will play a more important role in determining your advert position and is something that you have more control over.

It also means, of course, that your average CPC could increase too, but this would need to be tested on a term by term basis, since there are so many factors in play - including the Quality Score issues - that it can be hard to determine how one factor may change the dynamics of a campaign, plus if all advertisers bidding on a term use this new system to boost their ad rankings, then the average CPC is likely to rise as well.

Google continues to set a minimum bid price for the top positions above the main search results, although they continue to stress that the better quality the advert and landing page, then the option to reduce the minimum bid level improves. This can be quite a complicated system to grasp, particularly for new advertisers, and although Google likes to focus on quality and relevancy, cynics will also see this as a move to increase their revenues further.

Google says that this new system shouldn't create dramatic changes, but some advertisers may see movements in the positions of their ads, either up or down, which could also results in a change in the average number of clicks and average CPCs for impacted ads. As a cautionary warning, Google's help notes say "be sure to check your stats regularly and adapt your campaigns as you see fit. " One useful tip is that if you don’t want ads that usually appear in high positions alongside search results (on the right) to appear above search results (on the left), then you do need to check that their maximum CPCs are not dramatically higher than the actual CPCs being reported.