We all see google ads every day, which assist us in making decisions with our purchases or helping us find what we want. They are a great aid to businesses that are trying to be noticed by the public.
But how do Google ads really work? My customers often asked me “Could you explain Google ads in some very simple language?” That’s why I decided to write the article. Hope it will give you a better idea of how Google ads work.
Google Ads Auction
Google Ads determines which ads should show with a lightning-fast ad auction, which takes place every time that someone searches on Google.
For example, say you are a cleaning company that provides cleaning services to commercial properties. When the potential customer searches “office cleaning” from google, you and your competitors all want to be seen from the google search result. Then how does Google decide whose ad appears on the top of the page?
The Ad Rank
The order in which the ads appear for a specific search is called the ‘Ad rank.’ The ad with the higher rank will be shown in the higher positions on google. Ads with the highest Ad Rank get the most desirable placements on the page.
There are three main factors that determine the ad rank.
1. The Bid Amount
By setting the bid, you are allowing Google to understand how much you are willing to spend for a click on your ad.
Back to the example, when someone searches for “office cleaning”, you and company A, B, C all want to be seen. So, everyone put in an auction price – how much you are willing to pay for the ad placement in the search result.
- You – $2 per click
- Company A – $4 per click
- Company B – $3 per click
- Company C – $1 per click
Note that you are able to change your bid at any time.
2. Quality Score (QS)
The Quality Score is decided by
- Expected click-through rate
- Ad relevance
- Landing page experience
It is on a scale of 1 to 10. 5 is the average. 10 is the highest.
3. The Expected Impact of Ad Formats
There is always an option for additional information to be linked into the ad, known as ‘ad extensions.’ From here, Google is able to estimate how extensions and other formats of ads are able to positively impact your ads performance.
Google combines bid price, Quality Score, and ad format impact to decide the final position of your ad. Your Ad Rank is recalculated each time in an auction, so your ad position can fluctuate each time depending on your competition, the context of the person’s search and your quality at that moment.
| Competitors | Bid | Quality | Format Impact | Ad Rank | Position |
| A | $4 | Low | No Format | 4 | Ad not shown |
| B | $3 | Medium | Low | 15 | 2 |
| C | $1 | Medium | Medium | 8 | 3 |
| You | $2 | High | High | 20 | 1 |
See the above example, although company A’s bid price is $4/click, their quality score and format impact are low. So, they only got 4 points in the auction. Although your bid price is $2/click, your quality score and format impact are high. You got 20 points in total, which is the highest Ad Rank, thus you will get the #1 position on the search result.
According to the ad rank, the ads will appear in the below order:
#1 You
#2 Company B
#3 Company C
Company A’s ad won’t show up on google search result this time although he is willing to pay more.
The Actual CPC
The amount you end up paying is generally less than your bid price. Your actual CPC is going to be $0.01 more than the Ad Rank of the advertiser below you divided by your Quality Score.
Your Actual CPC = the Ad Rank of the advertiser below you / your Quality Score + 0.01
See below example,
| Position | Competitors | Bid | Quality Score | Ad Rank | Actual CPC |
| #1 | You | $2 | 10 | 20 | 15/10+0.01=1.51 |
| #2 | B | $3 | 5 | 15 | 8/5+0.01=1.61 |
| #3 | C | $1 | 8 | 8 | Auction minimum $1 |
| Not Shown | A | $4 | 1 | 4 | Not Shown |
It’s Worth Focusing on Quality
An experienced Google Ads advertiser will devote time to optimizing the Quality Scores of their campaign week-by-week and month-by-month. The rewards for doing this can be significant. Even if your competitors have higher bids than yours, you can still win a higher position at a lower price by improving your Quality Score and using highly relevant keywords and ads. It will not only save the ad cost a lot in the long term but also give you the most exposure in Google search results.
