Inside AdSense has a useful post on how AdSense determines what order ads will appear on your site. While the price an advertiser is willing to pay per click is definitely a factor it’s not the only one. There is a complex algorithm behind it which they attempt to explain by writing:
‘So, you ask, how is Ad Rank determined? While bid price (the price advertisers are willing to pay for each click per thousand impressions) is obviously an important factor, we also calculate advertiser Quality Score to make sure the best performing ads will always appear on your site. Quality Score takes into account factors such as an ad’s relevancy and click-through rate (CTR) (i.e. how likely users are to click on a given ad) because a higher CTR sometimes outweighs the benefits of a higher bid price. This ensures that your site always displays the ads representing the highest revenue potential for you.’
They also attempt to clear up a commonly asked question about image ads and how they determine when to show them or not.
You might also wonder: “But image ads usually take up multiple ad slots — does this limit the amount of money that I can make?” Good question, but no — for an image ad to appear on your site, it has to produce an effective CPM greater than the sum of the individual text ads.’
