Google receives 3.5 billion searches every day, and 84% of people use Google at least three times a day to search for information.
When Google has a search query, Google Ads runs a quick auction to determine which ads will be shown for that search query and what ad positions should be. This ad auction is repeated every time an ad is eligible to appear on a search query out of the billions of searches performed every day.
Google uses a value called an ad rank to determine whether and where an ad will appear in Google search results. If your ad doesn't meet the Ad Rank thresholds, it won't show. Ad Rank also determines the cost per click (CPC) that an advertiser pays for a click on an ad.
In this article, we'll take a look at the main factors Google uses to determine how well your ads rank during the auction, and what those factors mean for your advertising strategy.
Understanding the Google Ads auction. How the Google Ads auction works
When a user enters a search query, Google Ads auctions all ads matching the keyword in a second. This will determine which ads are eligible to appear, their position relative to competing ads, and the cost per click the advertiser will pay for a click on their ad.
When setting up Google Ads pay-per-click (PPC) marketing campaigns, advertisers determine which keywords they want to bid on and set a maximum CPC bid. The advertiser also sets up keyword ad groups and creates related ads.
If there is a search query, the Google Ads auction is launched. Here is the auction process according to Google:
For each search query, Google Ads finds all ads whose keywords match the search criteria.
The system ignores ads that are not suitable for this location, as well as any rejected ads.
Other ads will be ranked based on their Ad Rank. Ad rank depends on maximum CPC bid, ad quality, ad rank thresholds, search context, and ad extensions and formats.
Matched ads that won the auction are displayed in search results based on their ranking.
The layout of the Google search results page is constantly changing. Currently, Google shows three ads above the regular search results and three ads below the search results on each search page. Depending on the popularity of a search query and the number of matching ads, ads may appear on more than one search page for a search query.
Here is an example of a search for "ophthalmologist in Kyiv" that shows three relevant Google ads above the regular search results:
Figure 1. Ads displayed above normal search results for a search query
What is Ad Rating?
The ad with the highest ranking will appear at the top of the search results page for the relevant search query. Then comes the ad with the second highest rating, and so on. Ads that do not meet Ad Rank requirements will not appear on Google.
Calculating Ad Rating
Ad Rank = Maximum CPC bid x Quality Score plus additional factors such as the impact of ad expansion and format, Ad Rank thresholds, search context and auction competitiveness.
Therefore, increasing your spend does not necessarily guarantee a higher ad rank.
Figure 2. Calculation of advertisement rating.
Why should you care about Ad Rank?
Google sets minimum ad rank thresholds that determine whether an ad will appear on Google.
Advertisers compete to have their ads appear at the top of the search results, as this results in a higher click-through rate (CTR) and leads to more leads. Ad CTR varies greatly depending on the position of your ad.
The average CTR for all Google Ads ads is 3.17% in search. But this CTR varies greatly by industry and position, with a "good" CTR for position 1 being 6% or higher.
Even these small percentage differences can mean thousands of additional clicks for higher ranked ads.
With that in mind, let's take a closer look at the two main factors that determine your ad's ranking.
What is CPC?
Cost per click (CPC) is the price you pay per click on your ads in Pay Per Click (PPC) marketing campaigns.
When you set up a Google Ads PPC campaign, you set a maximum CPC bid for the keywords in your account. You can set your maximum CPC bid at the keyword level or at the ad group level:
Maximum cost per click is the maximum amount you are willing to pay for clicks on your ads.
Actual CPC is the final amount you pay per click on your ad. Your actual cost-per-click is determined during the auction and may be less than the maximum cost-per-click amount.
Average cost per click is the average amount you pay for clicks on your ads.
Although CPC costs may vary depending on your industry, the average Google Ads CPC is $2.69 for search and $0.63 for display.
CPC pricing is also called PPC or Pay Per Click. Therefore, Google Ads is called contextual advertising or pay-per-click advertising.
How ad rank affects actual cost per click
Ad Rank also affects the actual CPC you pay for clicks on your ads.
Google Adds uses a second price auction system.
The actual cost per click you pay is calculated during the auction based on your Quality Score and the advertiser's ad rank below you plus $0.01. Because the auction is dynamic, the actual cost per click may vary from auction to auction.
Google does not disclose the details of how they calculate the average cost per click for Google Ads. According to Search Engine Land, the actual CPC you pay per ad click is determined during the auction using the following formula:
Actual CPC = (Lower Advertiser Rank/Your Quality Score) + $0.01.
Figure 3. Actual CPC calculation for each ad position
What is a quality score?
Quality Score is a diagnostic tool used to evaluate the overall quality of your ad compared to other advertisers.
Ads and landing pages that are considered more relevant and useful to a search query receive a higher Quality Score. This helps ensure that more useful ads appear higher in search results.
Quality Score is measured on a scale of 1 to 10 and is available for each keyword. It is based on historical impressions to accurately search for your keyword.
Three factors that determine the quality score
The quality indicator is calculated based on three main factors:
Expected CTR
Expected CTR is the predicted rate of clickability of an ad when it appears on Google. Expected CTR predictions are based on a user's CTR, which helps decide which ads will perform best for a search query.
CTR is the number of clicks on your ad divided by the number of impressions of your ad: CTR = clicks/impressions.
landing page
Landing page experience measures how relevant and useful your website's landing page is to the person who clicks on your ad.
Ad relevance
Ad relevance measures how well your ad matches a user's search intent. This ensures that only the most useful ads are shown for each search query, and prevents ads that aren't related to the product or service from being shown to the search query.
Each of the three quality score factors is rated above average, average, or below average.
In addition to the three factors above, Google takes into account additional factors during the real-time auction, such as the type of device used, the user's location, the time of day, the impact of ad extensions, and more.
Conclusion.
The Google Ads auction is a real-time auction that is run on every Google search to determine which ads will be shown for that search and in which position. Ad Rank and Ad Quality Score are important factors in the ad auction and help determine whether an ad is eligible to appear on Google. By improving individual components of Ad Rank and Quality Score, you can improve the acceptability and ranking of your ads.
