The Basics of Google Ads & Auctions

Google Ads: Auctions

This article will give a quick overview of the basics of paid search, how paid search auctions work, and the details of Ad Rank.

What is PPC or Paid Search?

Have you ever noticed when searching on Google that the first 3-5 results at the top of the search results say “Ad?” Well, those are the paid search results. We all use search engines pretty much every day like Google and Bing, and one of the primary ways in which they make money is by serving ads in the search results. Advertisers can pay to be featured in search results based on the keywords.

Apple can pay to show an ad for an iPhone when some searches for phones and Nike can pay to show an ad for their newest sneakers when someone searches for basketball sneakers. Not all search results are paid for, but generally, the first 3-5 search results, the ones that have a little box that says “ad”, are paid for. The results that are not paid for are called “organic” results and this is where the topic of Search Engine Optimization (SEO) comes into play. For the purpose of this article, we are going to talk only about Paid Search, also referred to as Search Engine Marketing (SEM). Below is an example of a search result in Google featuring the two top paid ads.

Example of Google Ad

How do Auctions Work?

Every time somebody does a search on a search engine, say Google, there is an auction going on in the background to determine which ads will show up and where they will show up. These are all sealed auctions, where one advertiser does not know the bids of the other advertisers. For each ad in the auction, Google will calculate their “Ad Rank,” which determines the position of the ad based on the highest ad rank. For example, the ad with the highest ad rank will show up in position 1, the first spot in the search results, seen first by the user. 

Ad Rank

According to Google, there are six factors that affect ad rank:

  1. Your bid - also referred to as Max CPC, this is the bid that you submit to Google as your willingness to pay for a click on your ad for that keyword.

  2. The quality of your ads and landing page - since search engines serve the needs of searchers, they also want to ensure that they are showing the best quality ads and the most relevant ads to the searchers. For example, if someone wanted to advertise for pet toys when the searcher is looking for “coding classes,” that ad would not be relevant at all and it is likely that Google will not show the pet toy advertisement.

  3. Ad Rank thresholds - Google also has an Ad Rank threshold that serves as the minimum ad rank that an ad must have in order for it to show up at all. The example above about pet toys would also apply here.

  4. The competitiveness of the auction - many advertisers are often competing in the same auctions and as competitiveness increases, the cost per click for the auction will go up. 

  5. The context of the search - there are various factors for context here like location, device type, time of day, and more that could influence your ad rank. For example, if you are a Minnesota based company selling shoes and someone is searching in New Jersey, that would influence your ad rank for that search.

  6. Ad extensions and other formats - when you create an ad there are a handful of other options to add to your ad, like your phone number, specific landing pages, a location, and more, that are referred to as extensions. The quality of these extensions will also affect your ad rank

How to Improve Ad Rank

Google recommends 3 ways to improve the quality of your ads, and they are the 3 factors that make up your Quality Score. They are:

  1. Expected CTR - based on historical click data, taking into account your position, this is an estimate of the likelihood of someone clicking on your ad when it does show up. If you have great ads with compelling ad copy, you will likely have a higher expected CTR.

  2. Ad Relevance - this is Google’s determination of how relevant your ad is to the search. For example, if someone is searching for “black coffee mugs” and your ad says “Black Coffee Mugs | Shop Online for Mugs,” then you will likely score high on ad relevance.

  3. Landing page score - this is a measurement of how relevant and user-friendly your landing page is. If your landing page for “black coffee mugs” takes the user directly to a page with black coffee mugs and is easy-to-use, then you will score high for the landing page.

All 3 of these factors make up your overall Quality Score, which is a number between 1 and 10 which is a large factor in your Ad Rank. Each of these components’ scores can be seen within the Google Ads platform at a keyword-level for your account. They are scored on a three-point scale, “Below Average”, “Average”, and “Above Average.”

Become a Digital Marketing Expert

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