When doing Pay Per Click Advertising you'll often see "Bid Gaps" emerge among cost per clicks of keywords you're bidding on. For example, top three positions for keyword "Mortgage" may be listed as:
Position # 1 $1.00 Position # 2 $.79 Position # 3 $.78 In this example advertiser in #1 position is overpaying for their traffic. They could lower their bid to $.80 and still maintain their #1 position, while saving $.20 on each click.
Why Bid Gaps Appear:
Often times advertisers in top position want to put distance between themselves and their competition to avoid having to check each day to see if they're still in #1 position. Sometimes when companies upload keywords into their Pay Per Click Advertising program they set all their bids to same amount, regardless of where their competitors have set their bids.
The most common reason why some PPC advertisers create "Bid Gaps" and overpay for their clicks is they're not aware of tools available from third party vendors, or PPC Search Engines themselves to avoid these gaps.
Eliminating "Bid Gaps":
Some Search Engines like Google automatically eliminate "Bid Gaps" by ranking ads using a combination of click through rate, and maximum bid established by advertiser. Google claims this allows them to offer advertisers best ranking on page at lowest cost, while guaranteeing ads they display are relevant to keywords users are searching on. Google's system involves some trust on part of advertiser, since it's impossible to tell what you're competitors are bidding. If your competitor has done a good job optimizing their ad copy to achieve a high click through rate, their ad could appear above yours, even if you're paying a higher cost per click.
Other Pay Per Click Search Engines like FindWhat.Com offer an optional 'AutoBid" feature. This feature allows you to specify maximum you would be willing to pay per click for each keyword, and system will automatically adjust your bid to $.01 more than next highest bidder. If your competitor raises their bid system will continue adjusting your bid until it reaches you maximum bid.
Current bid for #1 position: $.50 Maximum bid that you specify using "AutoBid" feature: $1.00 The amount system will set your bid: $.51 It's important to note that cost per click may never reach your maximum bid. We highly recommend using automated bidding features whenever possible. These tools allow you to maintain premium positioning for your ads at lowest possible costs while saving you time from having to check where your ad is ranked every day, and manually adjusting your bids.