A Beginner’s Guide to Google Ad Auctions

If you’re using AdWords to drive traffic to your website, you may have wondered how exactly the Google ad auctions work – how are ads ranked, what’s an ad rank, and how do the cost-per-click prices work? 

If so, you’ve come to the right place. 

The following article explains how Google Ad Auctions works from start to finish and will help answer some of your questions about the best ways to use this powerful PPC platform to your advantage.

What Is an Ad Auction?

An ad auction is a behind-the-scenes process that determines how much you pay for your search ads and where they show on Google search results pages. The ad auction is also what decides whether your ads appear at all. 

Businesses that buy Search Ads on Google should understand how ad auctions work because ultimately, the success of their campaigns depends on it. 

There are different factors at play in an ad auction, but the basic process is as follows: When someone types in a query on Google, their algorithms work quickly to determine which results are most relevant and then display them at the top of the search results page. (In other words, they try to provide their users with useful and engaging content from both organic and paid search results.) 

How Does Google Decide Who Gets Which Ad Position?

The Google ad auction uses an algorithm based on Quality Score and bids. The top position is worth a lot, so there are usually several bidders vying for it. These spots show high-quality ads – at a price! 

On the other hand, lower positions don’t have as many bidders—their ads aren’t as well optimised or they bid less. 

Google takes these factors into account when determining who gets what spot. Put another way: If you want to get good performance (i.e., more clicks) out of your search campaigns, you need quality ads and reasonable bids; if not, someone else will take your spots away! 

It is possible that Google will automatically optimise your adverts for better performance—and in some cases, they offer assistance in improving their quality too! But that’s a discussion for another time. 

Types Of Google Ad Auctions

The Google Ad Auction is pretty complex and can be broken down into two different categories: 

• Auctions for search advertising 
• Auctions for display advertising

Before we go over any of that, let’s define what exactly an auction is. If you haven’t heard of auctions before, think about eBay where buyers place bids on a specific item until no more bids are made. Then, one buyer wins that item for a certain price. 

The same thing happens in Google AdWords, only advertisers bid on specific keywords. Unlike eBay however, there aren’t real people bidding on Google AdWords. It’s all done automatically by Google based off what advertisers have bid for and how much competition there is for those keywords. 

How Do Bidders Participate?

Bidders are advertisers (like you), agencies, and partners who want to show their ads alongside search results related to queries made by potential customers. 

They place bids on keywords that match terms people use when looking for products or services (i.e., car repair near me, Panda loves noodles menu, cute dog groomer near me). 

Bids can be either manually entered or automatically set by software programs called ad servers; these automated bids can be based on keyword quality or competitive metrics. When you set up your PPC ad campaigns then you’ll input the metrics that you prefer to start participating in the ad auction. 

Read more on What is PPC In Marketing here.

Why Keywords Matter (Even in Topic-Targeted Keyword Auctions)

Many “marketing specialists” will tell you that keywords aren’t important anymore. They claim that advertisers are rewarded for high-quality content (and/or a direct connection with their customers) instead of links and keywords. 

While it’s true that Google is changing its policies toward quality content, there is still one place where keywords reign supreme: Google ad auctions! 

No matter what type of ad your business is running – search or display – every single auction runs off of keyword bids. The keywords your business bids on directly determine where your ads show up on a SERP and what your cost per click will be.

What’s more, if you’re not paying attention to which keywords you bid on, chances are your competitors are getting all the traffic!

Which Cost Per Click Model Should You Use?

CPC is an acronym for cost per click, and that’s exactly what it is—the amount you have to pay Google every time someone clicks on your ad. 

Google makes money from all of these clicks, so they try their best to show relevant ads, which explains why CPC is typically higher than CPM. 

CPM stands for cost per 1,000 impressions; basically, it measures how much you have to pay Google every time 1,000 visitors see your advertisement. This works a lot like display advertising platforms like Facebook or LinkedIn, where you get charged based on impressions rather than clicks.

You can do keyword research using Google’s Keyword Planner, where you can figure out how much people tend to bid on specific keywords in your industry. There are also a number of third-party tools (such as Long Tail Pro and SEMrush) available if you want to dig even deeper into keyword research and planning campaigns around those keywords. 

Don’t forget to account for search volume when doing this; make sure people are actually searching for a particular phrase before trying to capitalize on it!  

The main drawback with CPC is that since you’re paying per click, you may end up paying more than what someone is willing to pay at that very moment. That means they might be willing to click on an ad but not willing to buy at that moment.

On top of that, sometimes you’ll find yourself in a bidding war with another advertiser who wants your potential customer just as badly as you do, which drives prices up even higher. CPM solves these problems by charging advertisers based on impressions rather than clicks.

Google Ad Auctions Made Simple

So, what is a Google ad auction? Well, it’s pretty simple really: advertisers bid for their ad to appear in a specific spot. The highest bidders with the best ads show up first.

We hope that helped demystify how a Google ad auction works! Next time you want to dive into more specifics on different types of search advertising and successful ppc managament check out some of our resources. 

Oh, and be sure you know your audience before diving in! Good luck and happy advertising.