How Google Ads Work


Google Ads Auction How it Works

If you have a question, where do you look for answers? If you say Google, you’re one of the 3.5 billion searches conducted every day on the search engine. People turn to Google to answer questions and find information because they know Google supplies relevant search results fast. There are an estimated 1.17 billion Google users worldwide. This is a massive number of people to get Google ads in front of.

You’re probably familiar with search ads. These are the top three or four results that appear at the top and bottom of the search engine results page. You know what the ads look like and what they are, but do you know how Google Ads work? You would assume the advertiser that pays the highest price is guaranteed the top result, but that isn’t the case.

Today we’ll go over what happens behind the scenes of Google Ads. Understanding the backend gives users insight into why they’re shown certain ads, and helps advertisers understand why it’s important to keep their campaigns in tip-top shape.

If you want to learn the basics of Search Engine Marketing, check out our article here.


The Google Ads auction

When creating search ads, advertisers set up ad groups with related keywords to bid on. They’ll then tell Google their maximum bid—the most they’re willing to pay for a click on that ad (also known as CPC). Every time you search for something on Google, an auction is run on those keywords to decide which ads to show and in which order.

In a traditional auction, the person with the highest bid wins. You may think that Google would sell the top positions to the highest bidders, but as we said earlier, Google does things a little differently.

If ad results were purely based on who has the most cash, companies would control the top spots whether their ads were relevant or not. Imagine the frustration of searching for “wool sweaters” and getting results for “lamp repair shops.” And if users aren’t clicking through ads, Google isn’t making money.

The ad auction factors a few things when deciding which ads to show. First, the keywords must be relevant. When a user types in a query, Google searches for keywords that match. Google then scans to see if any advertisers are bidding on keywords it finds relevant to that query. To determine relevance, Google gives a quality score of 1 (bad) to 10 (best).


The importance of Ad Rank

From here, the ads with relevant keywords are then evaluated based on a formula called Ad Rank.
calculator icon
To calculate Ad Rank:

Quality Score x Max CPC

According to Google, Ad Rank is determined based on the factors below:

  • Bid price –The higher you bid, the higher you rank.
  • Ad quality – This is based on real-time results of expected CTR, ad relevance, and landing page experience. How relevant and useful are your landing page and ad to the target audience?
  • Competition – If several ads are competing with one another, the highest-ranking ad’s bid price is determined by the lower-ranking ad’s bid price.
  • Search Context – Ads created for specific locations, devices, times, and search queries can receive higher Ad Rank than generic ads.
  • Impact of extensions and other ad formats – Additional information for your ads, such as Ad extensions, can also affect your Ad Rank depending on how Google Algorithm sees them.
  • Ad Rank thresholds – The minimum requirement for Ad Ranks to participate in the auctions. Anything below that value disqualifies ads from showing on the results page even if they have a higher bid.

The eligible ads that win the auction are then shown on the page.

Let’s give an example

A user types paleo diet into Google. The minute they hit enter, behind the scenes, the ad auction starts. Google looks at the search and considers other relevant keywords like:

  • Low carb diet
  • Healthy diet
  • Diet plan
  • Best diets

The top-ranking ads using these relevant keywords are then shown to the user.

It’s important to mention that Ad Rank is recalculated each time an ad competes in an auction. This means advertisers can’t get lazy with search ads – constantly monitoring performance and optimization is key to staying on top!

The power of Google Ads

That’s it! Those are the basic components that power Google Ads. Of course, this is a very basic overview of how the system works. There is a world of strategies that advertisers use when creating campaigns and bidding that we didn’t even touch on.

Google wants to make search as easy and relevant as possible, and ad auctions balance the interests of Google with the interests of advertisers and searchers. Google Ads are an instant way to gain a snippet of Google real estate, gaining tons of eyeballs and visibility.

Post wrap up

Interested in running Google Ads?