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How Do Google Ad Auctions Work?

on April 3, 2018

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Google Ad auctions can get a bit complex, but having a fundamental understanding of how they work can keep you from wasting money.

How Google Ads Auctions Work

Google Ad Auctions

As someone who runs—or does marketing for—a business, you want people to be able to find you and see your ads your ads when they run a Google Search relevant to what you have to offer.

So, you set up a Google Ads account and write ads with particular keywords related to your business. If you run an organic pizza shop in Baltimore, you might use keywords like “organic pizza”, “Baltimore pizza”, or “Baltimore restaurant”. You then set a maximum cost-per-click (or CPC) bid for your keywords.

When someone does a Google Search, the Google algorithm checks to see if advertisers are bidding on the major keywords in that search query. [The search query is the group of words or question typed into the Google Search bar.]

Google starts an auction with qualifying advertisers based on the keywords in a search query. Google uses all the qualifying ads (using that keyword)  and their respective bids to determine which ads (and in what order) on that user’s search results page. And it only takes a fraction of a second.

You identify keywords to bid on for every ad you write. Google uses their algorithm data and your keywords to determine which keyword and CPC bid to enter into a given auction. [That’s why it’s important to have focused, relevant keywords. Otherwise, you either don’t get entered into auctions, get low placement, or get clicks from users looking for irrelevant information.

When deciding where to place your ad, Google looks at three things: your bid, your Quality Score, and the expected.

Your bid: the maximum amount you’re willing to pay for your ad to show on a user’s SERP.

Your Quality Score: This number is determined by a few things that factor into the Google algorithm:

  • Google’s Expected Click-Through Rate (CTR)
  • How your other ads have performed
  • The quality/relevance of your keywords, ad copy, and landing page

Your ad’s expected impact: This includes (along with the expected CTR) any ad extensions you use to make your ads more interactive and beneficial. [There are lots of useful Google Ads extensions out there, so be sure to do your homework when setting up your campaigns.]

Google determines your rank by using this formula:

Ad Rank= Max CPC Bid x Quality Score

Important: Google’s auction system is set up so you only have to bid 1 cent higher than the advertiser below them. That’s because they want quality ads— not just ads from the highest bidder. That’s why your Quality Score is super important.

[Learn more about Google Ads] [Get help with your quality score.]

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