To place an advert, an advertiser specifies a list of keywords (or sometimes landing pages or products) for which they want the advert to appear, the advert’s content and the price they are willing to pay for a click. When a user searches, Google displays a list of adverts next to the natural search results triggered by keywords in the search query. The adverts’ order is decided by the cost per click the advertiser is willing to pay and the advert’s historical performance.
For example, imagine an online retailer wanting to advertise its digital camera range. They create an advert triggered by the key phrase ‘Canon digital camera’. A user then uses Google to search for the phrase ‘buy Canon digital camera’. If the search phrase contains the specified keywords, the advert may be served. If a user clicks on the advert, the retailer is charged. If not, there will be no cost.
Ad Auction: How Google Calculates Cost-Per-Click
When deciding what to charge advertisers, Google uses an auction-style bidding process to set prices. For any two adverts of the same quality score (see below), Google will award the higher position to the ad with the highest bid. However, the winning bidder will pay only slightly more than the loser.
For example, suppose three ad slots are available and four advertisers are competing for those positions. The table below shows each advertiser’s maximum bid and what amount they end up paying if their ad is clicked:
| Advertiser | Position | Max Bid | Amount Paid |
| Ad 1 | 1 | £4 | £3.01 |
| Ad 2 | 2 | £3 | £2.01 |
| Ad 3 | 3 | £2 | £1.01 |
| Ad 4 | 4 | £1 | Ad not shown. |
How Ads are Ranked
Google displays Paid Search results in order, just like organic search results. The position of an ad has a significant impact on traffic. To decide the relative positioning of ads, Google has devised a score called Ad Rank. The higher an ad scores, the better its position. Ad rank is decided by:
- Bid amount. All other things being equal, bidding higher means higher rankings.
- Quality score. A measure of the relevancy of the ad to the query
- Context of search. Google will look at the searcher’s details (e.g., location, device and time) in relation to your ads.
Ad Rank recalculates each time that ad is eligible to appear and competes in an auction, so its position can fluctuate each time depending on your competition, the context of the search and your quality score at that moment.
Quality Score
The Quality Score is Google’s measure of the quality of a search query/advert combination, i.e., how relevant the advert is to the search query. Quality score is decided by:
- Historical Click-Through Rate. CTR indicates how relevant the advert is to its associated keywords.
- Ad relevance. Google will analyse whether the ad is relevant to the search query.
- Relevance of the landing page. Google analyses the landing page’s content to judge the page’s relevance to the advert and keyword. For example, imagine you are bidding on a competitor’s brand name, and the advert directs users to your website, where naturally, your competitors brand name is not mentioned. In this situation, Google will analyse the landing page and may increase its minimum bid for this keyword.
The quality score rewards relevant, high performing ads with a higher position at a lower cost per click. For an advert to get an elevated position, it is not enough just to bid high, you also need to have a superior quality score.
The diagram below shows how the entire process works:
- When someone searches, Google identifies all the ads with keywords matching that search.
- From within those ads, Google ignores any that are ineligible, e.g., those that target a different location.
- Of the remaining ads, only those with a sufficiently high Ad Rank may display.
