There are 3.5 billion search queries on Google every day, and 84% of people use Google at least three times a day to search for information.
When there is a search term in Google, Google Ads runs a quick auction to determine which ads will show for that search term and what ad positions should be. This ad auction is repeated every time an ad is eligible to be shown for a search query out of billions of search queries every day.
To determine if an ad can appear in Google search results and what its position will be, Google uses a value called ad rank. If an ad doesn’t meet the ad rank thresholds, it won’t show. Ad Rank also determines the cost per click (CPC) that an advertiser pays per click on their ad.
In this article, we’ll cover the main factors Google uses to determine ad rank during an auction and what those factors mean for your advertising strategy.
Understanding the Google Ads Auction. How Google Ads auction works
When a user enters a search term, Google Ads auctions all ads that match the keyword in a fraction of a second. This will determine which ads are eligible to be shown, their position relative to competing ads, and the CPC that an advertiser will pay per click on their ad.
When setting up Google Ads Pay Per Click (PPC) marketing campaigns, advertisers determine which keywords they want to bid on and set a maximum CPC bid. The advertiser also sets up ad groups with keywords and creates related ads.
If there is a search query, the Google Ads auction starts. Here is the auction process according to Google:
- For each search query, Google Ads finds all ads whose keywords are relevant to the search terms.
- The system ignores ads that are not suitable for this location, as well as any disapproved ads.
- The rest of the ads will be ranked based on their Ad Rank. Ad rank is based on the maximum CPC bid, ad quality, ad rank thresholds, search context, and ad extensions and ad formats used.
Eligible ads that win an auction are shown in the SERPs based on their rankings.
The Google search results page layout is constantly changing. Google currently shows three ads above organic search results and three ads below search results on every search page. Depending on the popularity of the search term and the number of matching ads, ads may appear on more than one search page for a search term.
Here is an example of a search for “ophthalmologist in Kyiv” that shows three relevant Google Ads above the regular search results:
Figure 1: Ads shown above organic search results for a search term
What is Ad Rank?
The ad with the highest ad rank will appear at the top of the search results page for the relevant search term. Then comes the ad with the second highest ad rank, and so on. Ads that don’t meet the ad rank requirements won’t show up on Google.
Ad rank calculation
Ad Rank = Max CPC bid x Quality Score plus additional factors such as ad extension and ad format impact, ad rank thresholds, search context, and auction competitiveness.
Thus, increasing your spending does not necessarily guarantee you a better ad rank.
Figure 2. Ad rank calculation.
Why should you care about your Ad Rank?
Google sets minimum ad rank thresholds that determine whether ads will even show on Google.
Advertisers compete to have their ads appear at the very top position in the SERPs as this results in a higher click through rate (CTR) and results in more leads. The CTR of an ad varies significantly depending on the position of your ad.
The average CTR for all ads in Google Ads is 3.17% in search. But this CTR varies significantly by industry and position, with a “good” CTR for position 1 being 6% or higher.
Even these minor percentage differences can mean thousands more clicks for higher-ranking ads.
With that in mind, let’s take a closer look at the two main factors that determine your ad rank.
What is cost per click?
Cost per click (CPC) is the price you pay per click on your ads in Pay Per Click (PPC) marketing campaigns.
When you set up a Google Ads PPC campaign, you set a maximum CPC bid for the keywords in your account. You can set your maximum CPC bid at the keyword level or at the ad group level:
- The maximum CPC is the maximum amount you are willing to pay for clicks on your ads.
- The actual cost per click is the final amount you pay per click on your ad. Your actual CPC is determined during the auction and may be less than the maximum CPC amount.
- The average CPC is the average amount you pay for clicks on your ads.
While the cost of a CPC may vary depending on your industry, the average Google Ads CPC is $2.69 for search and $0.63 for display ads.
CPC pricing is also called PPC or pay per click. Hence, Google Ads is called contextual advertising or pay per click advertising.
How Ad Rank Affects Actual CPC
Ad Rank also affects the actual CPC you pay for clicks on your ads.
Google Ads uses a second price auction system. The actual CPC you pay is calculated during the auction based on your Quality Score and the ad rank of the advertiser below you, plus $0.01. Since the auction is dynamic, the actual CPC may vary from auction to auction.
Google does not disclose the details of how they calculate the average CPC for Google Ads. According to Search Engine Land, the actual CPC you pay for a click on your ad is determined during the auction using the following formula:
Actual CPC = (lower advertiser rank/your Quality Score) + $0.01.
Figure 3. Calculating the actual CPC for each ad position
What is a quality score?
Quality Score is a diagnostic tool used to evaluate the overall quality of your ad compared to other advertisers.
Ads and landing pages that are considered more relevant and useful for a search query receive a higher Quality Score. This helps ensure that more useful ads show up higher in the SERPs.
Quality Score is measured on a scale of 1 to 10 and is available for each keyword. It is based on historical impressions to accurately search for your keyword.
Three Factors that Determine Quality Score
The Quality Score is calculated based on three main factors:
Expected CTR is a predicted click-through rate for an ad when it appears on Google. Expected CTR predictions are based on the user’s CTR, which helps you decide which ads will perform best for a search term.
CTR is the number of clicks on your ad divided by the number of times your ad was shown: CTR=clicks/impressions.
Landing page experience measures how relevant and useful your website’s landing page is to the person who clicked on the ad.
Ad relevancy measures how well your ad matches the user’s search intent. This ensures that only the most useful ads are shown for each search term, and prevents ads that are not related to a product or service from being shown for the search term.
Each of the three Quality Score factors is rated Above Average, Average, or Below Average.
In addition to the three factors above, Google takes into account additional factors during the live auction, such as the type of device used, the user’s location, the time of day, the impact of ad extensions, and more.
The Google Ads Auction is a real-time auction that runs on every Google search to determine which ads will be shown for that search term and in which position. Ad Rank and Ad Quality Score are important factors in the ad auction and help determine if an ad is eligible to show on Google. By improving the individual components of Ad Rank and Quality Score, you can improve the acceptability and rank of your ads.