You can bid any amount you wish on a keyword, all the way down to one cent. In the past, Google calculated a minimum bid for each keyword. If you placed a bid below that value, your ads simply would not be served at all. Since September 2008, the minimum bid requirement has been removed. You may now see next to your keyword “Below first page bid” with a minimum bid estimate.
Your ads may still be shown on the first page if you don’t meet this bid. After all, as mentioned, conditions change all the time. For example, advertisers pausing their ads, changing their bids, advertising only at certain times or having exhausted their budget or simply because their QS is decreased. Searchers may also go beyond the first page and if your ad ranks there, searchers will be exposed to your ad.
So in effect, you are not being asked to bid a minimum. The system is just letting you know that you may not be on the first page where you will maximize your exposure. It simply is a warning.
The bid amount is based on what the last advertiser’s ad rank calculation and your own ad rank, in other words your QS and bid. Suppose that there are eight advertisers on the first page and that the last one bids $0.50 with a CTR of 4% (I’ll use CTR instead of QS for simplicity). That gives him an ad rank of 200.
On the other hand, you are bidding $0.75 with a CTR of 2% which is an ad rank of 150. In order for you to overtake him and place on the first page, you would have to have an ad rank of 201 or, at the same click rate, bid $1. But if you increased your CTR to 3%, your bid would only have to be $0.67 to make it on the first page.
Keep in mind that because everyone has a different CTR (different quality scores), the minimum bid asked will be different for everyone. You can do one of three things when seeing the warning message: ignore it and take your chances, bid at least the suggested amount or improve your ad. This third option is the one that Google would prefer you do.
Some people think that Google is just forcing you to increase your bids to make more money. While Google is in business to make money (aren’t we all?), they prefer that you improve the quality of your ads. That’s what the QS is all about. It can easily be shown that it is in everyone’s interest to have higher quality ads. Obviously, an advertiser would get more quality traffic. But Google would make more money too. They make more money from an ad paying 25 cents with a 5% click rate than one with a 1% click rate and paying one dollar. In the first case, the revenue is $1250 per 100,000 impressions while it is only $1000 for the second ad.
The minimum bid changes all the time because the information changes all the time, not only different advertisers but the bids they place and their quality score after every search. For keywords that have a lot of searches and high competition, the minimum may change seemingly minute by minute.
Therefore, if you place a bid that is the minimum, you may see a different minimum soon after because the system has now recalculated the minimum bid and you may still be under it. It may also disappear just because you are on the edge of the calculation.
A funny thing about the first page minimum is that it can show even if you are averaging a position that is already on the first page. I tend to ignore the message when that happens, especially if my position is good. The reason is probably because the system calculates all advertisers using the keyword, whether they are active or paused. It also probably calculates for all countries. This makes it appear as if there are more advertisers in the region you are advertising. All these are skewing the calculation and giving seemingly incongruous information.