Last updated on September 20th, 2018 at 11:24 am
Google AdWords is an extremely efficient and profitable system.
It helps businesses control how often they show their ads and how much money they are making from them.
AdWords is driven by an auction bidding market. Let’s break down these two keywords: auction and bidding. In this auction, advertisers compete to show their ads to prospective users.
AdWords is different: it based on how frequently an ad shows, its site on the page and how much the ad costs all depend on the two factors:
Example: If your ads are poor quality (low-quality score), you have to pay lots more (highest bids) to Google for them to make it valuable to show the ad to their users.
In this article, we will discuss how AdWords works and how you can make money using AdWords:
- How does Google AdWords Work?
- How does the Google auction work?
- What Ads eligible for the Auction?
- Key Google AdWords Auction Factors
- How Are Ads Ranked?
- How does AdWords calculate Actual CPC?
- What factors impact the ad auction?
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How does Google AdWords Work?
Quality Score is a key to describe how AdWords works. The quality score shows how well an ad group, keywords and landing page relate to what a user is searching for, and how probable someone is to click on the ad.
So, every time someone is searching on Google, an AdWords auction is formed. Every advertiser who has a keyword match to the search query participates in the auction. Exactly how each advertiser plays is based on their Ad Rank.
Ad Rank = Quality Score x Bid
What is Ad Rank?
Ad Rank is the value that decides your ad position in the paid search results in Google AdWords and whether your ads are eligible to show at all.
The ad with the highest Ad Rank gets to show in the top position and the ad with the second-highest Ad Rank gets to show in the second position and so on.
Some key factors contributing to your Ad rank:
- Bid Amount/Ad Rank Thresholds: The minimum amount you need to bid to be in a specific position.
- Ad Quality: CTR, relevance, landing page experience and your quality score.
- The Context of Search: Device, time of day, terms, etc.
- Ad Extension Impact
4 Essential Elements before the launch of Google Ads:
“An ad is counted as “viewable” when 50 percent of your ad shows on screen for one second or longer for display ads and two seconds or longer for video ads. You can select Viewable CPM as a bid strategy when you choose CPM bidding for your “Display Network only” campaign.” Source: Google
How does the Google auction work?
When a query is made on Google, the search engine practices the request and runs the auction which will then determine the ad positions and each advertiser’s CPC.
“CPC, or cost per click, is the amount an advertiser pays each time someone clicks on their AdWords ad.”
It is determined by the competitiveness of your keywords, your maximum bids, and your Quality Scores.
Your Google ads are eligible to be entered into an auction whenever you’re bidding on keywords relevant to the user’s search query. Your bids, Quality Score, and relevance will come into play in determining whether your ad qualifies to display on the SERP.
What Ads eligible for the Auction?
Advertisers find groups of keywords to bid on for every ad they create. Your Google ads are eligible to be entered into an auction whenever you’re bidding on keywords related to the user’s search query.
Your bids, Quality Score, and relevance will come into a show in defining whether your ad qualifies to display on the SERP.
If your ads that have poor relevancy, are unapproved, or inappropriate like ads that target a different country to the query are disapproved based on a policy violation.
Note: Important thing to remember is that even if your competition bids higher than you, you can still win a higher position at a lower price with highly appropriate keywords and ads.
Key Google AdWords Auction Factors
The 3 main factors are important for AdWords auction-
Bid: Bid is a maximum amount of money advertisers are ready to pay in order for your ad to show. This is known as your Max CPC Bid.
The quality of ads is the quality score. There is some another factor which also determines the quality score of your ads:
- Google’s Expected Click-Through Rate (CTR)
- Historical Adwords Performance
- The Quality and Relevance of Keywords
- The Quality and Relevance of Landing Page
- The Quality and Relevance of Ad Text
The third important factor is the expected impact of your ad. It is a part of your quality score. In this, AdWords will look at any ad extension added in your ad, such as location extension, sitelink extension, and defines how that will impact how individuals relate with your ad.
Note: These can be useful because if you’re using highly appropriate and correct ad extensions, your ad might rank higher, even if your competition has a higher Max CPC Bid.
How Are Ads Ranked?
How does AdWords calculate Actual CPC?
Actual CPC is determined by dividing the ad rank of the competitor below them (ad rank to hit) by quality score plus $.01.
Example: Ad auction for an ad unit that shows one ad
In this example, there are three advertisers with the same Quality Score challenging for an ad unit that can show only one ad.
A wins the auction because he is bidding the highest, based on a combination of CPC bid and Quality Score.
The amount that’s compulsory for A to rank above the next best ad – B’s is — $3.01. Because this is an ad unit that shows only one ad, all of the clicks A gets are considered incremental to what he would have received in a lower position, which is equivalent to not being shown since there is no lower position. A, therefore, pays an Actual CPC of $3.01 per click.
What factors impact the ad auction?
The result of each auction and your earning can change depending on the following factors:
- Seasonal campaigns: you can run your ad during specific times of the year, where you spend more money in a short period of time or change their bids intensely.
- Ad targeting: You can have certain campaigns be only contextually-targeted or placement-targeted to publisher sites.
- Geo-targeting: Also target their ads to specific areas and select to bid based on time of day.
- Conversion Optimizer: If you are using Conversion Optimizer, your bids may be automatically adjusted to deliver clicks or conversions against specific targets you’ve set.
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