AdWords’ Search Network operates on a pay-per-click model, in which users bid on keywords and pay for each click on their advertisements. Every time a search is initiated, Google digs into the pool of AdWords advertisers and chooses a set of winners to appear in the valuable ad space on its search results page. The “winners” are chosen based on a combination of factors, including the quality and relevance of their keywords and ad campaigns, as well as the size of their keyword bids.
Let’s dive a little deeper into this process, which is referred to as the AdWords auction. Any time a user does a search on Google.com (or one of Google’s search partners), Google compares the search query to advertisers’ keywords. If one or more advertisers are bidding on keywords that Google deems relevant to the search query, an auction is triggered.
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Each advertiser that is bidding on a relevant keyword is entered into the auction once. To determine where each advertiser’s ad gets to appear on the SERP, Google calculates each advertiser’s Ad Rank, a metric calculated by multiplying two key factors—CPC Bid (the highest amount an advertiser is willing to spend) and Quality Score (a value that takes into account your CTR, relevance, and landing page quality). Google also considers whether the advertisers in question have implemented Ad Extensions. If the expected impact of these extensions is high, this will also positively impact one’s ad rank.
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Once Google has determined each advertiser’s ad rank, it must calculate their actual cost per click. To do this, it takes the ad rank of the person below them, divides that by their Quality Score and adds one penny. This is what the advertiser will pay if the searcher clicks on their ad.
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Understanding the auction process is critical for all advertisers using Google AdWords. Knowing how each account component factors into ad rank and actual CPC can help you to make smarter decisions when managing your Search Network campaigns. Please note that this auction process does not apply to ads shown on the Google Display Network.
If you have questions regarding the AdWords ad auction, please do not hesitate to reach out to your dedicated Customer Success Representative or utilize our Chat Now feature.
