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Google Ads: How the Auction Works

Want to understand how Google’s Adwords Auction works? Or learn how to win the Ad Auction? I’ve got you covered.

Google Ads are one of the marketing channels that Ecommerce business owners should be using or at least considering.

However, if you’re not well prepared or getting help from a PPC professional, you can lose a lot of money with Google Advertising.

Especially, if you don’t understand how the Ad Auction works. 

In this article, I’ll share everything you need to know about the auction process. So, you can be prepared for your next Google Shopping or Adwords campaign

Without further a do, let us begin…

how the google ads auction works guide cover photo infographic
How Google Ads Auction Works – Infographic

The google adwords auction explained

Most internet ads compete in live auctions that are run by super computers!

Theses contests determine whether your ad get’s shown, and where they get shown on the page.

Most people assume that highest bidding advert will win the auction.

That’s incorrect!

The auction uses a sophisticated formula and range of influences to determine the winner…

How an actual auction works

The auction process works like this…

Step 1. Someone performs a search on Google.

Step 2. The auction finds all ads that are relevant to the search.

Step 3. Ads which are ineligible to run — for a different country, or disapproved — are filtered out of the auction.

Step 4. The remaining Ads have their Quality Score calculated. This is influenced by:

  • Expected click-through rate of Ad
  • Landing page experience — fast, easy to navigate, good relevant copy, privacy policy in place, etc.
  • Quality & Relevancy of advert
  • Format — extensions such as promotions and reviews which might improve CTR
  • Context of the search — time of day, device, user’s location, nature of the search terms

Step 5. The Quality Score and Max Bid are combined to create the Ad Rank of any given Ad. The formula: QS X MB = Ad Rank

Step 6. For an ad to appear it needs a minimum Ad Rank — Google only wants to serve quality adverts!

Step 7. The ad with the highest Ad Rank wins the auction and gets the best placement on the page. The remaining ads are shown accordingly to their position in the ranking table.

Aside: Ads with high Ad Rank will cost you significantly less per click.

How google determines the price you pay

If someone clicks your Ads, you incur a charge from Google. Here’s how that’s calculated:

Cost of Click = (Ad Rank of person below you / Your Quality Score ) + £0.01

For example:

Mo finishes second place in the auction with an Ad Rank of 32.

Ian wins the auction with a Quality Score of 8.

Ian’s cost of click = (32/8) + £0.001 = £4.01

Fact — you can win the Adwords Auction and pay the smallest amount of any advertiser on the page. How?

By optimising your Advert and landing page experience — this should be a top priority for every brand who’s advertising online.

Start smart by starting small

It’s easy to waste money with any form of advertising – including Google Ads.

You need to Box clever!

Here are three points to remember:

  • Start by running a small campaign with a test budget.
  • Only scale up your spending when you’ve seen consistent results.
  • Consider working with a qualified Google PPC Agency.

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