How Does Google Adwoords Bid Simulator Indirectly Shows Price Elasticity

In the example above, the increase of CPC by 16.3% (from $2.02 to $2.34) caused an increase of clicks by 27% (from 484 to 667). Price elasticity is equal to 1.65 (i.e. 27÷16.3), and its reciprocal value is 0.6. Therefore, in this case, an increase of bids will be profitable if the current ROI is greater than 0.6 (60%).

Also Google AdWords bid simulator indirectly shows price elasticity data:

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In the example above, a bid increase by 100% should result in 7040 – 6060 = 980 additional clicks (+13.9%). The cost should increase from $702.33 to $1048.95 and CPC should change from $702.33/6060 = $0.12 to $1048.95/7040 = $0.15 (change by +25%). The price elasticity is 13.9/25 = 0.56.

The bid simulator columns are also available in AdWords interface views, which makes the bulk data download easier.

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When we increase bids and the offered CPC become equal to or more than “first page bid” values, the ads become visible and acquire few clicks, which compared to nearly zero is a high relative change. Therefore the price elasticity is very high. As soon as the impression share grows to 80-90%, the additional impressions start to have a smaller impact on the click volume than the position of the ad.

Of course, the higher position, the higher the CTR. There are no official statistics, but the practice shows that moving from position 10 to 1 can change the CTR from around 0.5% to 20% or