Start off bidding high while you’re gathering data and just to get the ball rolling. Always pay closest attention to which adcopy converts best in your testing phase.
Then lower your CPC bid every other day or so until your position starts suffering. If you don’t lower your bids over time, which is most beginner PPC advertisers, then you’re overpaying for clicks plain and simple.
A hypothetical example
You start your campaign and you’re bidding $3/click, but your clicks are actually costing you $2.32. After a day or two, you lower your CPC bid to $2.30 (a couple ¢ under what you’re paying) and then wait for some more traffic to flow. Then check on it a day or two later. Now you may see that your clicks are actually costing you $1.83, so you then lower your CPC bid to $1.81.
When you keep repeating this process of lowering your bids over time, at some point you’ll reach the lower bid floor and your position will start suffering. Obviously you don’t want to trade cheap clicks for shitty position, so raise your bid a little bit until you find a happy balance between position and CPC price.
I decided to update this post real quick and try to explain the “reason why” a little bit more thoroughly. I always seem to hit the publish button a little too soon
CTR matters to Google because that is what makes them money. They want to put the ads that make the most money in the best positions, obviously. If your ad has the highest CTR, you’re able to pay a lower CPC than all your competitors if your CTR makes up for it. Consider this scenario…
You are paying $0.20/click and have a 8% CTR. With that math, we can deduce that Google will make $16 per 1,000 impressions of your ad (CPM).
1000 imp X 0.08 = 80 clicks
80 clicks X $0.20 = $16 CPM
Now let’s say your next best competitor is getting a 5% CTR and is paying $0.30/click
1000 imp X 0.05 = 50 clicks
50 clicks X $0.30 = $15 CPM
As you can see, Google would give your ad a better position even though competitor #2 is paying a higher CPC than you. Competitor #2 would have to raise their bid or increase their CTR to beat you.
The most IDEAL situation is when your best converting ad is also the one with the highest CTR, but that is usually not the case. Usually, your best performing ad is NOT the one with the highest CTR.