Explaining the Google Ads (AdWords) advert auction system

Have you ever wondered how Google calculates how much you pay for a click on AdWords? And how your advert ranking position is determined? Here we explain this often misunderstood element of AdWords advertising, namely the relationship between Quality Score and cost-per-click.

Ad quality is a very important element for Google’s advertising – users want to see relevant ads; advertisers want to present relevant ads to users; and Google wants both users and advertisers to have a good experience so they come back and continue to use the system. So Google is mainly concerned with ensuring that the ads shown to users have a high ad quality, which is represented by a Quality Score.

There are 3 components to the Quality Score which is allocated to each search term, with the most important one by far being clickthrough rate. This essentially allows users to vote with their clicks and gives Google good feedback upon which to make its decision to determine which ads are the most popular for a particular search query / keyword.

Relevancy is the second largest factor in determining Quality Score. Google determines relevancy by analysing the language and context of an ad or query and determining how well it relates to a keyword. Google uses relevance to ensure that only useful ads are displayed to users.

The final Quality Score component is landing page quality. An ad is only useful to a user if the ad they click upon goes to a landing page that helps them find the information they’re looking for. A high quality landing page should have relevant, original content, be easily navigable with quick load times, no pop-ups (or pop-unders) and be transparent about the nature of the business.

Quality Score then affects the way in which the auctions are run, through the concept of Ad-Rank. This is the bid price set by the advertiser, multiplied by the Quality Score of the ad. These two numbers multiplied together results in the Ad-Rank figure (N.B. not to be confused with the advert position).

The adverts are then positioned in descending order of that resulting Ad-Rank figure. This is done so that advertisers cannot simply buy the top advert position if their Ad-Rank figure and hence, relevancy to the user’s search, is lower than their competitors. So Google’s priority for the user’s experience comes before the amount an advertiser is willing to pay.

The amount paid per click is then only the minimal amount that is necessary to retain the advert position above the next competitor. This amount is calculated by the Ad-Rank figure of the advertiser directly below (in the advert positions on the results page), divided by your Quality Score.

The main point to remember is that by increasing Quality Score, it’s possible to reduce the amount that is paid per click. So adverts that are more popular with users and more relevant, that land on decent pages, cost less for a higher position than competitors’ adverts that don’t score so well on these factors.

This is a useful video where these concepts are clearly explained and demonstrated by Hal Varian, Google’s Chief Economist.

If you’d like more information about how our professional Google Ads (AdWords) management can help increase your Quality Score and reduce your average cost-per-click, contact us now.

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