What is a bid (in advertising)?
A bid is the maximum amount an advertiser is willing to pay for buying advertising media. By setting a bid an advertiser will set the maximum Cost per Click (CPC), Cost per Mille (CPM) or Cost per Action (CPA) they will buy. The bid is sometimes also called “max bid.”
Why is bidding important?
Before an ad is shown, an auction is run in milliseconds. This auction decides which advertisers’s ad gets shown for a given audience or keyword. This means advertisers are effectively bidding against eachother, based on the popularity for showing ads to that audience.
Just as in a real auction, there is a price where the item (the ad) becomes too expensive for the potential buyer (the advertiser).
Setting a bid allows an advertiser to keep buying ads when the price is affordable and stop when the price becomes too expensive. Once the ads become more affordable again, the advertiser will automatically resume buying ads.