Google uses a quality score plus CPC model to rank all their ads. In the past, to achieve a top slotted ad position, you would need to meet a certain overall threshold in both quality and CPC price. Google, as stated above, is changing that algorithm to be more sensitive of the quality component, while also adjusting the figure used to determine your CPC. Now, Google uses the "actual" CPC, but in the upcoming weeks Google will use the "maximum" CPC.

What is the difference between actual CPC and maximum CPC? Every advertiser has to set a maximum CPC for their keywords. But an advertiser won't necessarily pay the maximum CPC price when their ad is clicked on. In fact, most of the time advertisers won't pay that amount. Instead, they will pay an actual CPC, which is lower than their maximum CPC.

For example, say I have an ad with a maximum CPC of $0.50, but there are no competitors in my keyword ad space. In that case, I will probably pay an actual CPC of $0.05 and not the $0.50, since I'm not competing against anyone.

In the past, Google used the actual CPC in the ranking algorithm for the top ad position. In the future, Google will be using that maximum CPC. As you can see, this gives advertiser more control on achieving that top ad position. Back to our example above. This advertiser who has been noticing a $0.05 actual CPC, will now be credited for his maximum CPC of $0.50 and will thus have an easier chance at obtaining the top ad spot.