How Google Ads Work

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. Google displays a list of adverts next to the natural search results triggered by keywords in the search query when a user searches. 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 wants to advertise its range of digital cameras. 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’. As the search phrase contains the specified keywords, the advert is displayed. If a user clicks on the advert, the retailer is charged. If not, there will be no cost.

Calculation of 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 there are three ad slots available and four advertisers 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:

AdvertiserPositionMax BidAmount Paid
Ad 11£4£3.01
Ad 22£3£2.01
Ad 33£2£1.01
Ad 44£1Ad 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 call 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, time, etc.) 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:

  1. When someone searches, Google identifies all the ads with keywords matching that search.
  2. From within those ads, Google ignores any that are ineligible e.g., ads that target a different location.
  3. Of the remaining ads, only those with a sufficiently high Ad Rank may display.

Ad Distribution

Google ads do not just appear on Google’s search pages (i.e., Google.com). The advertiser also has the choice to allow their ads to appear on other sites within Google’s Display Network and Search partners.

Google Display Network

The Google Display Network consists of over than 2 million websites. Your campaign will run on the Display Network with no additional set-up when you choose this option. Your ads will appear only when predicted to be effective, and you are not using all your budget on search.

Search Partners

Google search partners are search sites that show Google ads on their search results. Example sites include:

  • Amazon. Ads are displayed alongside search results.
  • Guardian. This site uses Google custom search to power site search.
  • YouTube. YouTube is the world’s second largest search engine.

Should you Advertise on Google’s Partner Sites?

The benefit of Google partner sites is that they enable your ads to reach a much wider audience. Search results pages make up a tiny fraction (around 5%) of all pages viewed online, and the Google Network lets advertisers reach the wider internet audience. Google analyses each page’s content, examining text, language, link structure, and page structure to serve the most relevant ads.

Advertisers can opt in or out of partner sites, and Google provides performance reporting that breaks out the partner sites. You can always include the partner sites initially and exclude them if they do not meet your performance targets.