Your advertising cost on Google AdWords gets controlled through your daily budget and bids. Google also rewards you if you have a high quality account. Making it worthwhile to optimize your account as time goes on.
You can limit the amount you spend in each of your campaigns with your campaigns daily budget. This is the most you are willing to spend per campaign each day. Google provides you with a recommended daily budget to allow you to get the most impressions possible, based on you setting and other statistical data. You can also choose your ad delivery method, standard delivery and accelerated delivery. Standard delivery shows your ad evenly through the day and may not shown your ad at every occasion. Accelerated delivery on the other hand shows your ad as quick as possible till your daily budget is met. If you’re daily budget is low with the accelerated delivery option your ad might just show during a small portion of the day. Google may even “over deliver” your ad up to 20% more than your daily budget allows on a given day, but will never charge you more for the month than you have specified.
Your bid is the highest amount you are willing to pay for a click on your ad (CPC bid) or 1000 impressions (CPM bid). The ad group bid is the default bid that gets applied when no bid is specified for a specific keyword or site. Bids can be applied to ad groups, keywords and sites. In a keyword targeted campaign you can also specify a preferred CPC bid. This bid specifies the average amount you want to pay instead of a maximum amount.
There are two ways in witch Google automatically reduces your cost. Google does this with the AdWords Discounter and “Smart Pricing”. The AdWords Discounter works all the time and reduces your actual CPC cost to be lower than your maximum CPC bid. It calculates the lowest CPC bid to maintain your ad position on a page. “Smart Pricing” also works all the time and reduces the cost of keyword-targeted clicks when you advertise on the content network. If the click is less likely to turn into a conversion, such as a sale or sign up, Google automatically reduces the price you pay for that click.