The Google Auction 101

If you’ve read anything about pay-per-click advertising or Google Ads (formerly AdWords), you’ve likely come across the Google auction. Now, it may sound strange to you. You may wonder what it is or how it works or what’s in it for you. Most likely, however, there’s a lot in it for you and it’s well worth understanding. A Google Auction consists of 5 components, and understanding each of them is crucial to your ad campaign's success. Click To Tweet

Understanding the Google Auction

Pay-per-click advertising done well is one of the most efficient means of advertising available and a stellar companion to a quality organic SEO strategy. At the end of the day, you only have to pay when you get a click. A high click-through rate, however, doesn’t necessarily mean more sales or even more leads. After all, it’s easy to generate clicks with low conversion potential.
The key, then, is attracting clicks from users who are ready to buy your specific offering. While there are a number of factors to consider, a good starting point is understanding the Google auction. It can be broken down into the following 5 components:

1. User Query
2. Bidding
3. Auction
4. Ad Rank
5. Payment

1) User Query

Everything begins with a search query. A user opens a web browser and types in a search term. The user may be in the market to buy something or they may be simply looking for information. It’s important to note that search terms and keywords are two different items. The user searches with a search term. The advertiser chooses keywords they’re willing to pay for. The keywords determine which search terms/queries will trigger your ads.

2) Bidding

The advertiser must determine a Cost-Per-Click(CPC) bid they would be willing to pay for every keyword they choose. As we’ll see in a moment, this isn’t necessarily the amount you will pay should you win a bid, but the maximum amount you’re willing to pay to win the bid. Your bid is also used in conjunction with your Quality Score to determine your Ad Rank in each auction. Your Ad Rank determines if your ad will show in a given query and where it will appear if it does. Ad Rank is also used in determining your actual CPC when your ad shows.

3) Auction

Every time a user searches on Google, Google determines if there are any advertisers bidding on keywords relevant to the search term. If there are 1 or more, an ad auction is triggered. If there are none, there is no auction and no ads will show. When an auction is triggered, Ad Rank determines which ads will appear in the Search Engine Results Pages (SERP) and in what order they will appear.

4) Ad Rank

Getting a better Ad Rank is key in improving your position in the SERP, so understanding Ad Rank is essential. Ad Rank is made up of primarily your Quality Score and max CPC bid. Originally, the formula was simply Ad Rank = Max CPC Bid X Quality Score.  However, in recent years, Google has enriched the Ad Rank by also taking into consideration the use of extensions and the ad format. Without going into a lot of detail, what this basically means is 1) Aim for a Quality Score of 7 or better, 2) mind your bidding, and 3) always use all relevant ad extensions.

5) Payment

Winning the bid only means your ad will show in the SERP. You won’t be charged until a user actually clicks on your ad. A common misconception concerns the actual CPC you pay when an ad is clicked. Your actual CPC is often less than the max CPC of your bid because Google takes into account your Quality Score and Ad Rank to determine your actual cost. The formula is
Actual CPC = (The Ad Rank of the Ad directly below you / Your Quality Score) +$0.01. In this way, Google ensures you only have to pay the minimum amount necessary to hold your Ad Rank.

Beyond Winning the Ad Auction

Understanding the Google Ads Auction is the first step in running successful PPC campaigns. In order to smash your competition and leave them ever trailing behind you, you’ll need to do more than simply win the bids, though. You’ll need to win bids and attract the kind of quality clicks that will lead to solid conversions. You’ll need to master your Quality Score, maintain a quality keyword strategy, optimize your Ad Copy & landing pages, and keep it all going. It requires a lot of time and careful attention, but rewards are more than worth it. Get started today!
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