When working with the Google adwords program you may wonder how Google decides which ads go in spots 1,2,3 and which ads get pushed down the list. As it turns out it's a pretty simple formula that benefits both advertisers and Google.

Step 1: Google looks at how much you are willing to pay per click for your ad on a specific keyword. You may decide that for the word "Widget" you are willing to pay $0.25 per click.

Step 2: Google looks at how effective your ad is at getting people to click on it for the word "Widget." This is known as the click-through-rate and is the number of clicks that your ad received divided by the number of times it has been viewed. If your ad is viewed 100 times and 5 people click your ad has a 5% click-through-rate.

Step 3: Google figures out how much money it will make if your ad is displayed 1000 times. This is known as CPM or cost-per-thousand-impressions. To calculate CPM you take your click through rate and multiply it by 1000 and then by the amount you're willing to pay per click.

1000 x 5% X $0.25 = $12.50 

So now Google knows that for every thousand views they will charge you $12.50.  Now Google has a way to compare your ad to others and determine which ad deserves the best positions.

Based on this example Google would place your ad in the #1 position and the competitor in the #2 position. Even though the competitor is willing to pay more per click your ad has a higher click through rate which means that Google values your ad more than the competitor.

If you're trying to raise the position of an adwords ad you have two options. 1) Pay more per click or 2) write more effective ads so that your click through rate goes up. Writing more effective ads is the better option but takes time and practice. If you need a quick boost you can always spends more money.