Once you know where your ads will appear on Google, it’s helpful to understand how the Google Ads auction work.
Every time someone does a Google search the Google Ads auction decides which ads to show and in what order.
Google Ads Auction [Explained]
Imagine four advertisers are competing for space in the search results page. Each one has indicated how much they’re willing to pay for someone to click their ad and visit their website.
Bids
- Advertiser A bids $4
- Advertiser B bids $3
- Advertiser C bids $2
- Advertiser D bids $1
You might think that the highest bid of $4 would automatically win this auction. But, a high bid does not guarantee that people searching on Google see the ad most relevant to their search. Imagine if bids were the only consideration in auctions. Then you might see an ad for shoes triggered by a search for insurance.
In order to provide the best user experience, the ad auction considers three main factors:
- Your bid,
- The quality of your ad
- Expected impact of the Ad Extensions
Let’s start with your bid. This tells Google Ads the maximum amount that you’re willing to pay for a click on your ad. The second factor is the quality of your ads, also called Quality Score.
Quality Score
Quality Score refers to the relevance and usefulness of both your ad and the website it links to.
An ad’s Quality Score includes three components.
1 – Expected clickthrough rate, or expected CTR
This is a prediction of how often your ad will be clicked on when shown, based on historical performance data that Google has for every search query.
2 – Ad Relevance
The language of your ad is analyzed to verify that it matches the keyword.
3 – Landing Page Experience
An ad is only useful to the people clicking it, if it helps them find what they’re looking for. A good landing page should have relevant and original content,
be easy to navigate, and be transparent about the nature of your business and how you plan to utilize a user’s personal information.
You can monitor your keywords Quality Score in your Google Ads account, and increase the score by improving your clickthrough rate, ad relevance, and landing page experience.
Ad Extensions & Formats
The last factor the ad auction considers is the expected impact of your ad extensions and other ad formats. When creating your ad, you have the option to include additional information to your ad, such as a phone number, or links to specific pages on your site. These are called ad extensions.
The system estimates how the extensions and other ad formats you use will impact your ad’s performance. These three factors impact how your ad ranks in the auction. Imagine that advertiser A’s quality score is low, advertisers B’s and C’s are high, and D’s is medium.
For ad extensions impact, let’s say that advertiser A has no extensions, so they have no extensions impact. Advertiser B is only eligible for one extension, so they have a low extension impact. Advertiser C is eligible for many extensions, so they have high extensions impact. And advertiser D has a medium impact.
The system uses these three components to calculate the Ad Rank. In this example,
- Advertiser A’s Ad Rank is calculated as 5
- Advertiser B’s Ad Rank is calculated as 15
- Advertiser C’s is 20
- Advertiser D’s is 8
This Ad Rank score determines the ad position in the Search’s page results. So, in what order will the ads appear? Since advertiser C has the highest rank, their ad will show first. Advertiser B will appear second. Advertiser D will appear third, and advertiser A might not enter the auction at all, since their Ad Rank is too low.
Now that you understand how the ads are ranked, how much will these advertisers actually pay for a click? They’ll pay the minimum amount necessary to maintain their position in the Search results.
Let’s take a look at advertiser C. They’ll only pay the amount required to maintain their first position. Even though they’re willing to pay $2, they might only pay $1.73. Similarly, advertiser B won’t necessarily pay $3, but just enough to outrank advertiser D in the auction.
It’s important to note that you can impact your position and your cost-per-click. To improve your position, try raising your bid. Keep in mind that not every bid raise will lead to an improved position, since Ad Rank also considers Quality Score and ad extensions.
To help you decrease your cost-per-click, you can improve your ad quality or include ad extensions. These improvements can improve your ad clickthrough rate,
and reduce your cost-per-click.