Everything About Google Ads? How the Google Ads Auction Works
What Is Google Ads
Google AdWords, is Google’s advertising system in which advertisers bid on certain keywords in order for their clickable ads to appear in Google’s search results. Since advertisers have to pay for these clicks, this is how Google makes money from search.
Digital Marketing PostThis info graphic will help you understand how Google Ads works, detailing the Google Ads auction, bidding process and explaining important factors like Quality Score and cost-per-click.
Everything About Google Ads? How the Google Ads Auction Works
Does Google Ads work?
Depending on the competitiveness of the keywords you’re bidding for and the relevancy of that keyword to real conversions for your company, AdWords may or may not work for your business. For the most part, we’ve found that Google AdWords is extremely effective for many kinds of businesses, as long as they don’t waste their money on the wrong keywords, or write weak, low CTR ads.
How does Google Ads bidding work?
The highest ad rank gets the 1st ad position. Your actual CPC will be determined by the ad rank of the next highest ad below you divided by your Quality Score.
The only exception to this rule is when you are the only bidder or the lowest bid in the Google Ads auction; then you pay your maximum bid per click! Ad Words bidding heavily punishes advertisers who bid with low-quality scores. Conversely, those with high-Quality Scores get higher ad ranks and lower CPC.
Each advertiser tells Google the maximum amount they are willing to pay for a click. And then the amount they actually pay will be just enough to beat the next highest bidder – just like the way an eBay auction works.
What is Ad Rank?
The ad with the highest Ad Rank will be shown in the top position of the search results page for a relevant search term. This is followed by the ad with the second highest Ad Rank and so on. Ads that do not meet the Ad Rank eligibility requirements will not be shown on Google.
Ad Rank calculation
Ad Rank = Max CPC Bid x Quality Score plus additional factors like the impact of ad extensions and ad formats, Ad Rank thresholds, search context, and competitiveness of auction.
What is CPC?
Cost per click (CPC) is the price you pay per click on your ads in your pay-per-click (PPC) marketing campaigns.
When you set up a Google Ads PPC campaign, you set the max CPC bid for the keywords in your account. The max CPC bid can be set up at the keyword level or the ad group level:
The maximum CPC is the maximum amount that you’re willing to pay for a click on your ads.
The actual CPC is the final amount you’re charged for a click on your ad. Your Actual CPC is determined at the time of the auction and may be less than the max CPC amount.
The average CPC is the average amount you’re charged for a click on your ads.
How Ad Rank affects actual CPC
Ad Rank also affects the actual CPC you pay for a click on your ads.
Google Ads uses a second-price auction system. The actual CPC you pay is calculated at the time of auction based on your Quality Score and the Ad Rank of the advertiser below you, plus $0.01. Because the auction is dynamic, the actual CPC can vary with each auction.
Google does not disclose the details of how they calculate the Average CPC for Google Ads.
Actual CPC = (Ad rank of Advertiser below/Your Quality score) + $0.01
What is Quality Score?
When you advertise using Google Ads, Google gives each of your keywords a Quality Score from one to ten (with ten being the best). The main components in determining Quality Score are:
Click through rate (CTR)
The relevance and quality of the landing page
The most important of these components is the CTR. That’s because Google treats a click on an ad as a vote in favor of it.
By allowing users to vote with their clicks, Google is letting millions of people help it decide which ads are best for each search query. It’s their way of incorporating user feedback into the Google Ads system.
Relevancy is the second largest component of quality scores. Google takes into account the relevancy of the keyword to both the ad and the search query. This helps to ensure that only useful ads are displayed to searchers. It also prevents advertisers from buying their way to the top for a search that’s unrelated to their product or service.
Three factors that determine Quality Score
Quality Score is calculated based on the performance of three main factors:
Expected CTR
The expected CTR is a prediction of the ad clickthrough rate when the ad is shown on Google. Expected CTR projections are based on user CTR, which helps to decide which ads will perform best when shown for a search query.
CTR is the number of clicks your ad receives divided by the number of times your ad is shown: CTR=clicks/impressions.
Landing page experience
The landing page experience measures how relevant and useful your website landing page is to the person who clicked on the ad.
Ad Relevance
Ad relevance measures how well your ad matches the user’s search intent. It ensures that only the most useful ads are shown for every search query, and prevents ads that are unrelated to the product or service from being shown for a search query.
Google being Google, there are no doubt some additional subtleties in the way they calculate actual CPC which they don’t make public.
But, from the good amount of detail that we do have, you can see that Google has created a system that is far more cultured than many people realize and which helps create a more even playing field for advertisers with smaller budgets.
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