Google Ads Auction
First, we have to understand what is Auction? to understand, what is Google Ads auction, and how it works?
What Is Auction?
Auction is the process of selling goods through bidding. In an auction, people bid price on the product which is up for sale in that auction, and then the highest bidder gets that product.
The bungalow is up a sale through auction and “ABC” & “XYZ” are bidding on that bungalow. ABC bids 1 crore & XYZ bids 2 crores so bungalow will be sold to XYZ because he has bid higher than ABC.
Google Ads Auction.
Google Ads Auction is an online auction of ads and it works slightly different than offline auction we understood above. Because in Google Ads Auction, winners get decided based on two factors Quality Score & Bidding.
Two Factors That Google Ads Auction Takes Into Consideration When Deciding Winners.
1. Quality Score
The first Factor that google ads take into consideration is the Quality Score.
Quality Score is the quality estimate of your Ads, Keywords & Landing Page. Higher quality ads can lead to lower prices and better ad positions.
Quality score is calculated based on 4 factors as per below.
- Keyword relevancy with the user query.
- Relevancy of Ads with Keyword you are bidding on.
- Quality, Relevancy & User Experience of the landing page.
- Historical Performance of Google Ads account.
Quality Score is majored in 1 – 10 scale.
The second factor that Google Ads consider is bidding. But in Google ads, you will need more than your bidding because in Google Ads Maximum bidding is not enough because the Quality score also matters in Google Ads, and a high-quality score can make your Ad rank high with less bidding.
How Google Ads Auction Works (How It Starts & Ends)
Now we have learned what is Google Ads Auction and we have learned that in Google Ads Auction only high bidding is not enough but you will also need a good quality score in order to win. So now let’s learn how Google ads Auction works and decide winners based on bidding and quality score.
It’s all starts with query that user types in Google Search.
When user types query in Google Search, Google Breaks that query into parts and analyse it then looks into Google Ads database that how many advertisers are bidding on keyword that user has typed in Search.
If more than 1 advertiser is bidding on that same keyword then Google Ads Auction will be triggered.
What Goes into Auction? (On what user bids on?)
In Google Ads Auction happens for two things which is as below.
When user types query/keyword in Google Search that keyword goes into auction if more than 1 advertiser is bidding on that same keyword in Google Ads. And Google decides the winner based on the bidding and quality score of the advertiser’s Ads.
Note : Keyword Auction happens for Search campaign.
Place Auction used for Display Ad. When a user visits any website and if that website has installed Adsense on the website then the auction will be triggered for places on that website.
How does Google decide Winners? (How Google Decides Which Ads To Show Where?)
Google Ads decides winners based on the Ad Ranking process because in Google Ads there will be more than 1 winners and they will be given position using Ad Ranking which is as below.
Once Auction is triggered Google Ads looks at two factors to decide Ad Ranking which we learned above: Maximum Bid and Quality Score of Ads and decides ad ranking for ads. Highest Ad Rank Score Wins.
How Ad Ranking Is calculated?
Formula For Calculating Ad Ranking
Ad Rank = Max CPC (Cost Per Click) Bid * Quality Score (1 – 10)
Let’s Calculate Ad Rank.
|Advertisers||Max CPC Bid||Quality Score||Ad Rank Score||Position|
In Search Ads
|Advertiser – 1||$2||10||$2 * 10 = 20||1|
|Advertiser – 2||$4||4||$4 * 4 = 16||2|
|Advertiser – 3||$6||2||$6 * 2 = 12||3|
|Advertiser – 4||$8||1||$8 * 1 = 8||4|
Explanation : We have calculated Ad Rank in above table using Ad Rank formula
Example : Advertiser – 1 Ad Rank = $2 * 10 = 20
Notice How advertiser – 1 got 1 position with the lowest bid that means quality score plays a major role in Ad Ranking
How Does Google Decides Final CPC You pay If Your Ad Is Clicked?
Your maximum bid is not the final CPC that you pay. But Google finalizes your Final CPC using the below formula.
Your Final CPC (Final Price) = The Ad Rank Score Of Advertiser Below You / Your Quality Score * $0.01
|Advertisers||Max CPC Bid||Quality Score||Ad Rank Score||Final CPC|
|Advertiser – 1||$2||10||20||16/10+$0.01|
|Advertiser – 2||$4||4||16||12/4+$0.01|
|Advertiser – 3||$6||2||12||8/2+$0.01|
|Advertiser – 4||$8||1||8||$8 (Highest CPC)|
Explanation : We have calculated final CPC advertiser pay when ad is clicked in the above table
Example : Advertiser – 1 Final CPC = 16 (Ad Rank Score of advertiser 2) / 10 (Quality Score of Advertiser 1) + $0.01 = $1.61
The auctions get run billions of times each month. And results are such that
- Users finds at that relevant to what they are looking for.
- Advertiser gets connected with potential customer at best possible price.
- Google makes billions of dollars in revenue.
Google Ads Auction For Display Ads
Ad auction for Display Ads works similarly but get triggered by placement.
When a user visits any website and that website has installed Google Ad-sense then Google Ads Auction for Display Ads will be triggered for places on that website. Auction Will follow the same process we learned above but the just difference is that it will not be triggered because Query/Keyword instead it will be triggered for Place on websites.
As you may have noticed in this article that “Quality Score” plays a major role in Google Ads Auction. So that’s why we learn more about Quality Score in the next article.