For the past couple years clients' have been logging into their Google Adwords account and then asking us "why are our keywords below first page bid?" While this estimate has been around since 2008 or 2009, at some point it was added to the status column and has resulted in it being much more visible.
Typically my response has been: "Ignore That. It doesn't really mean anything." Although I sort of believe that to be true, I thought I would take some time to put together a slightly more satisfying response.
Here is what Google says about the first page bid estimate:
This estimate approximates what cost-per-click (CPC) bid is needed for your ad to show anywhere on the first page of search results when a search query exactly matches your keyword. Your ad can still appear if your bid does not meet this estimate, but it's less likely to appear on the first page of search results.
This is actually a quite perfect response. Let me elaborate on a couple of the most important pieces of this response.
when a search query exactly matches your keyword
Let's say you are bidding $1.50 on "red shoes," but the first page bid estimate is $2.50. You are much more likely to show on the first page of results when the user's query is "where to buy red shoes", so if you want to increase your chances of showing for "red shoes" you should increase your bid.
Your ad can still appear... but it's less likely on the first page
After digging into this one further, I was proven incorrect on something I've been telling clients for the past couple years. For those who have been doing this for 10+ years like me, you will remember it was not uncommon to see an average position of 32, 47, or even higher in the past. Google got rid of that years ago so now at first glance all pages appear to have the exact same ads as page 1. Upon further review and test searches, I discovered that every now and then you'll see a few ads after page 1 that have not shown on page 1 at all.
So, as we're managing your account, how do we use this information?
Depending on the goal, there are a couple of ways we use this. When we first launch an account or keywords, we often have to repeatedly bring keywords up to the first page bid estimate as Google adjusts the initial quality score. If we are managing an account and we need more traffic volume, we typically start with doing this as a quick method. We can also use the estimates to our advantage because they give us an indication of which keywords have more volume potential and serve as a quick way to identify "high quality" keywords that we might want more volume from. While we also consider impression share and average position, first page bid estimates are a simpler value to look at.
The final way, which is very often an indicator of a bigger issue, is low quality score. If it's a big enough issue within the account, we might look at ways to improve overall quality score so that Google drops the first page bid estimate down and we are eligible for more auctions without increasing our bid.
Below is an example. This particular keyword as a $15 bid with a $16.90 recommended first page bid, but the keyword has an average position of 2.1. Seems pretty good right? If you look to the far right though you see that we are losing 26.16% impression share to ad rank. That means 26.16% of the time the keyword is searched, we aren't eligible to show. Increasing the bid to the first page bid estimate increases the ads chances of showing when the particular keyword is searched.
One final point to note. If the campaign is limited by budget, we almost never increase bids above first page estimates. What that causes is us to pay more money per click and get less clicks within our budget.