While Google Ads help articles provide some assistance, they often fall short of clearly explaining how the system truly functions. Enthusiastic PPC specialists might as well be speaking a foreign language when they describe the intricacies of the Google Ads auction.

Imagine someone trying to explain Google Ads - it can sound like this. However, grasping the mechanics of Google Ads is crucial for making informed decisions about your advertising strategy. This comprehensive guide aims to demystify the workings of Google Ads through a step-by-step explanation, an engaging visual aid, and a handy FAQ section. Table of contents

• Does Google Ads work?
• How does Google Ads work? (the TLDR)
• How the Google Ads auction works: step by step
• The epic Google Ads Auction infographic
• All your Google Ads FAQs, answered Let’s delve into the world of Google Ads, exploring every aspect from keywords to costs and everything in between.

First of all, does Google Ads work?

As a digital marketing company, our positive response might seem biased. However, consider the following facts and statistics that support our position:

• High intent: Google Ads are encountered by users actively seeking specific information or products, not just browsing casually. In fact, for keywords related to purchasing, Google Ads receive 65% of all clicks, compared to 35% for organic results.
• Cost-effective: Ads are displayed only when relevant, and advertisers can set spending limits and schedule ads for optimal times. Google Ads have the potential to generate an impressive 800% ROI—meaning that for every $1 invested, advertisers can earn $8 in return.

• Credibility: As the world’s most popular and trusted search engine, Google Ads benefit from a high level of user confidence. Notably, 63% of individuals indicate they would click on a Google ad, significantly surpassing the 15% for Amazon ads, 9% for YouTube, and 6% for Bing.
• Clear measurement: Advertisers gain valuable insights from data that reveals what strategies are effective and which ones need adjustments. This allows for optimizing ad copy, bids, and account structure to maximize budget allocation.
• Immediate results: While SEO is a crucial long-term strategy for online visibility, it takes time to achieve organic rankings. In contrast, Google Search ads deliver instant visibility and drive traffic from the moment they are launched. Considering these advantages, it’s not surprising that 80% of businesses prioritize Google Ads for their PPC campaigns. Naturally, the effectiveness of Google Ads hinges on how well you manage your account. To ensure you’re maximizing your efforts, take advantage of our Free Google Ads Performance Grader.

How does Google Ads work? (the TLDR)

This question necessitates a detailed explanation, hence this comprehensive post and infographic. However, it’s always helpful to start with a concise overview before delving into the specifics. Here’s a quick rundown of how Google Ads work:

1. Advertisers create ads and select relevant keywords to target through bidding.
2. When a user enters a search query on Google, the system swings into action.
3. If ads targeting keywords related to the search exist, an auction takes place to determine which ads will be displayed.
4. Google evaluates all eligible ads, allowing only one ad per account to participate in the auction.
5. Winners are selected based on Quality Score and Ad Rank, calculated using specific formulas.
6. Advertisers are charged only when their ad receives a click, ensuring cost-effectiveness. Now, let’s take a closer look at the formulas involved and how they contribute to achieving an impressive 800% ROI.

How the Google Ads auction works

Understanding the mechanics of the Google Ads auction is essential for both advertisers and consumers. It provides transparency into why specific ads are shown and highlights the importance of maintaining a well-optimized account. This section provides a breakdown of the Google Ads auction process, focusing on Search ads (we’ll address Shopping and Display ads in the FAQ section).

1. Advertisers create ads based on keywords

This stage revolves around keyword bidding. Unlike traditional auctions where bids are placed on tangible items, in the Google Ads auction, advertisers bid on keywords. Let’s imagine a pet adoption agency as an example. They might create an ad targeting keywords such as pet finder, pet adoption, pet rescue, animal shelter, and related terms. The agency then informs Google of their maximum bid, representing the highest amount they are willing to pay per click for that specific ad. We’ll elaborate on this aspect later.

The FAQ section delves deeper into keyword targeting, addressing common questions. These ads and their corresponding keywords form the advertiser pool for the Google Ads auction.

2. Someone searches on Google

This action is known as a query. For clarity, in the context of this explanation, queries and keywords are essentially interchangeable. Keywords are the terms targeted by advertisers, while queries represent the actual words users type into the search bar.

In some instances, the query might precisely match a keyword, while in other cases, it may only be relevant. This brings us to the next crucial step.

3. Google looks for matches

This phase is referred to as keyword matching. Google meticulously scans the advertiser pool we discussed earlier, searching for advertisers who are bidding on keywords deemed relevant to the user’s query.

For a more in-depth understanding of keyword matching, refer to the comprehensive information provided in the FAQ section. There are situations, particularly for informational searches, where no relevant keywords exist within the advertiser pool. However, in numerous instances (accounting for 3 billion out of the 5.6 billion daily searches), matching keywords are identified. As mentioned earlier, these keywords may not always exactly match the query. Google Ads offers three distinct match types, which we’ll cover in the FAQs, providing advertisers with flexibility in targeting their desired audience. Let’s illustrate with a simple example: if a user searches for pet adoption, Google might identify keywords such as pet adoption, rescue shelter, pet finder, and even buy a dog (among potentially thousands of others) as the most pertinent matches based on the user’s query and location. Given the presence of relevant keywords in the pool, the auction process can commence.

4. The auction begins!

For each account bidding on one or more keywords related to the user’s query, Google selects a single keyword and its associated ad to participate in the auction.

Considering that there are over four million Google advertisers active websites, a single ad auction could potentially involve thousands of competing ads. However, Google’s search engine results page (SERP) has limited space for displaying ads, usually accommodating three or four ads at the top and bottom. This begs the question: how does Google determine the winners of this competitive process?

How does Google choose which ad to show?

A notable advantage of the Google Ads auction is that the highest bidder doesn’t automatically secure the top position. Google employs a sophisticated system that considers multiple factors to ensure the most relevant and high-quality ads are displayed to users. This levels the playing field, particularly benefiting small businesses utilizing Google Ads. Here’s how Google makes its selection:

Step #1: Quality Score

Each ad is assigned a Quality Score, ranging from 1 to 10, based on three primary criteria:

• Relevance: This measures how well your ad aligns with the user’s search intent, ensuring that the ad is relevant to what they are looking for.
• Expected click-through rate: This metric predicts the likelihood of your ad receiving a click if displayed, based on your ad’s historical performance compared to competitors. A higher expected CTR indicates a more engaging and relevant ad.
• User experience: This factor assesses the relevance and overall user experience of your landing page in relation to the ad. A positive landing page experience is crucial for user satisfaction and conversions.

Step #2: Ad Rank

Google then utilizes each ad’s Quality Score to calculate its Ad Rank: Ad Rank = Quality Score X maximum bid

The term “Rank” in Ad Rank might seem counterintuitive, as we typically associate the number one ranking with the top position. However, in this context, a higher Ad Rank signifies a better position. There’s no single ideal Ad Rank score to aim for, as it depends on the cost of the keyword and the competitiveness of the auction. To illustrate, consider two advertisers, Sam and Jane. Sam has a Quality Score of 10 and a maximum bid of $2, resulting in an Ad Rank of 20 (10 x 2 = 20). Conversely, Jane has a higher maximum bid but a lower Quality Score of 1, leading to an Ad Rank of 8. Consequently, Jane’s ad wouldn’t be displayed on the SERP, highlighting the importance of a strong Quality Score. (Jane needs to focus on improving that Quality Score!). **

**The ads with the highest Ad Rank scores win the auction and earn their place on the SERP.

Step #3: Cost per click

The final stage of the auction determines the price advertisers pay, known as cost per click (CPC). Advertisers are only charged when a user clicks on their ad, aligning with the pay-per-click (PPC) model. Importantly, the CPC isn’t a fixed price but calculated dynamically for each auction. It’s also not necessarily equal to the advertiser’s maximum bid. Your cost per click = Ad rank of advertiser below you / Your QS + $0.01

Let’s imagine an example with Sam, now occupying the #1 position. His Quality Score is 10, and his Ad Rank is 20. Mary’s ad, positioned directly below Sam’s, has an Ad Rank of 16. Using the formula, Sam’s actual cost per click is calculated as 16/10 + 0.01, resulting in $1.61. Now, let’s compare Sam’s CPC with Pat’s. Pat’s Quality Score is 2, with an Ad Rank of 12 and a cost per click of $4.01. Despite having a higher maximum bid, Pat’s ad appears two positions below Sam’s due to a lower Quality Score. This demonstrates that while maximum bid plays a role in determining Ad Rank, it’s not the sole factor.

As evident from this scenario, Google prioritizes higher-quality ads by rewarding them with lower costs per click. This system ensures that searchers are presented with ads relevant to their searches and more likely to pique their interest, while advertisers benefit from a cost-effective advertising solution. This creates a win-win situation for all parties involved. That’s precisely why Google Ads can deliver such impressive ROI: searchers see ads tailored to their needs, and advertisers pay the lowest possible price for each query, maximizing their return on investment.

How does Google Ads work: The complete visual

To solidify our understanding, let’s visualize the entire process with this comprehensive and visually appealing infographic: Click to see full-size.

More FAQs on how Google Ads works

This section addresses common questions about the Google Ads auction, providing further clarification on how Google Ads operate.

What is a keyword?

Keywords are terms entered into search engines by users seeking information, products, or services related to what you offer. For instance, if you’re promoting a pet adoption agency, relevant keywords might include “pet adoption near me,” “rescue dogs for adoption,” or “local animal shelters.”

How many keywords should I target per ad group?

Google suggests a maximum of 30 keywords per ad group, but a best practice is to aim for no more than 20 for optimal performance. A well-structured Google Ads account typically consists of campaigns categorized by goals (e.g., Search, Display), ad groups within each campaign (ideally 7-10 per campaign), and ads with corresponding keywords within each ad group. An effective ad group generally comprises 2-3 ads directing users to the same landing page and targeting a focused set of keywords (not exceeding 20).

How do I determine which keywords to bid on?

Keyword research tools are invaluable for identifying valuable keywords. These tools provide insights into monthly search volume, average cost per click, and competition level for specific keywords. Utilize our Free Keyword Tool or explore our curated list of recommended keyword research tools for this purpose. Additionally, our detailed guide on keyword research offers valuable strategies and best practices.

What’s the difference between a keyword and a query?

While both terms relate to words entered into search engines, there’s a subtle distinction. “Keywords” typically refer to the terms advertisers target in their campaigns, while “queries” represent the actual phrases users type into the search bar. A query may directly match a targeted keyword or be contextually relevant.

What is maximum bid?

Maximum bid refers to the highest amount you’re willing to pay for a single click on your ad. Google uses your maximum bid in conjunction with your Quality Score to calculate your Ad Rank, which determines your ad’s eligibility to appear on the SERP and its potential position.

How does maximum bid work with automated bidding strategies?

Automated bidding strategies, such as CPM (cost per thousand impressions) and CPA (cost per acquisition), introduce variations in how maximum bid functions. For CPM bidding, if a CPM bid competes with CPC bids, Google utilizes its eCPM (effective cost per thousand impressions) technology to determine the effective bid. With CPA bidding, you set a target CPA or conversion value, and Google automatically adjusts your max CPC bids based on historical conversion data to optimize for your desired outcomes.

Does the Google Ads auction run for every search?

Not every search triggers an auction. Auctions are primarily triggered by searches with commercial or transactional intent, where users are actively looking to purchase products or services. Informational searches, such as those seeking general information or how-to guides, are less likely to trigger auctions.

How do match types work?

When selecting keywords, advertisers choose match types that determine how closely the keyword must match a user’s search query for the ad to be displayed. Google Ads offers three main match types:

• Broad match: This type casts the widest net, potentially displaying your ad for searches that include variations or synonyms of your keyword.
• Phrase match: This option offers a more targeted approach, showing your ad for searches containing the exact phrase or a close variation of your keyword.
• Exact match: This restrictive match type ensures your ad appears only for searches that precisely match your chosen keyword or extremely close variations. Keyword matching behavior is constantly evolving alongside Google’s algorithms, but here’s Google’s current chart:

What is a good Quality Score?

Ranging from 1 to 10, a good Quality Score varies depending on the type of keyword and industry. While aiming for a perfect 10 isn’t always necessary, a higher score generally leads to better ad performance. Here’s a general guideline for target Quality Scores based on keyword types:

• Branded keywords: 8-10
• High-intent commercial keywords: 7-9
• Low-intent keywords: 7
• Competitor keywords: 3+

What’s a good Ad Rank?

Unlike Quality Score, Ad Rank has no defined range, as it’s calculated by multiplying Quality Score with maximum bid, both of which can vary significantly. The key takeaway is that a higher Ad Rank increases the likelihood of your ad securing a higher position on the SERP. You can improve your Ad Rank by focusing on improving your Quality Score.

What’s a good cost per click in Google Ads?

A “good” cost per click (CPC) varies greatly by industry, competition level, and campaign goals. According to industry benchmarks, the average CPC across all sectors is $3.53, with significant variations ranging from $1.40 (real estate) to $8.67 (legal services).

How much does Google Ads cost?

The cost of running Google Ads depends on factors such as industry, target audience, budget allocation, and account optimization. Our comprehensive post on Google Ads costs provides detailed information on expected monthly expenses.

How does Google Ads billing work?

Google Ads offers three flexible payment options to suit different preferences:

• Automatic payment: This hassle-free option automatically charges your chosen payment method after your ads run, either upon reaching a predefined billing threshold or on a 30-day billing cycle.
• Manual payment: This option gives you greater control by allowing you to make payments before running your ads. Ads run until your pre-paid balance is depleted, providing clear budget management.
• Monthly invoicing: This option is typically available to businesses eligible for a Google credit line, offering greater financial flexibility. For more detailed information on Google Ads cost management and budgeting, refer to our comprehensive guide on Google Ads budgets and our step-by-step walkthrough of the Google Ads budget report.

How long does it take for Google Ads to work?

After setting your ad live, Google typically takes 24-48 hours to review it for policy compliance and ad quality. If your ad is disapproved, our detailed guide on Google Ads disapprovals can help you troubleshoot and resolve common issues.

How do Google Shopping ads work?

Google Shopping ads differ from traditional text ads as you don’t directly bid on keywords. Instead, you optimize your product feed, which contains information about your products, and utilize negative keywords and priority settings to control your ad spend and delivery. For more information on Google Shopping campaigns, refer to our guide on priority bidding for Google Shopping.

How does the Google Ads auction work for Display ads?

The Display ad auction follows a similar principle but is triggered by “placements.” These placements represent advertising spaces made available by website and app publishers through the Google AdSense network. Advertisers can target specific websites, apps, or demographics through Display ads. Explore our comprehensive resources on Display ads to delve deeper into this advertising format.

Yes, Google Ads works!

That concludes our exploration of the intricate workings of Google Ads. The key takeaway? Google Ads can be highly effective when implemented strategically. Follow our step-by-step tutorial on how to run Google Ads to launch your campaigns effectively. Once your campaigns are up and running, leverage our free Google Ads Performance Grader to ensure you’re maximizing your ROI and avoiding common pitfalls.