This post comes to us from the BoomTown blog:

Google Adwords for many of our Boomtown clients has and continues to be an awesome source of high quality leads and traffic. We get a lot of questions from clients about Adwords, and many of these revolve around budgeting.

How Is My Budget Spent?

Everyone needs to start somewhere, and to determine how much to spend it's important to understand how Google actually spends your budget. Unlike traditional media formats, Adwords is a "self-serve" ad platform with auction based bidding. What that means is 24/7/365, advertisements, per-click bids, budgets, and competitors are constantly changing. Available inventory is not sold or distributed evenly. Your budget is spent on a CPC or Cost-Per-Click basis, which means you only pay when someone clicks on your ads.

What's My Cost-Per-Click?

Google's auction based system takes into account several factors in determining what you pay per click on an ad. Important factors are the number of competitors, their max CPC bid, search demand for the keyword, previous account performance, and the budget of the accounts in the auction. The effects of previous performance and budget on click costs can be a little confusing to new advertisers, so let's look at a different example of how this works.