Google AdWords Auction and Bidding 101: The Mechanics Behind It

Google AdWords

Google AdWords is creating a dramatic change in marketing strategies over the world wide web. Every day, billions of people do an online search, and Google advertisements are clicked by the million!

What Exactly is AdWords?

Google’s AdWords platform is a paid advertising system where certain keywords are bid upon by advertisers to have their ads appear in search results presented by Google. It’s basically how the tech giant makes money from daily searches. It’s how you, whether small or medium business or large organization, can acquire massive high-quality traffic sources and reap sweet success.

Opening an AdWords account is all it takes to advertise on the search giant and make it known to people who want what you have to offer. Done right, companies world over can become successful in a relatively short time. Here’s to a better understanding of how the auction and bidding processes work, and all-important aspects such as an ad’s ranking, CPC, and scores as to quality.

How Bidding Works in AdWords

Bidding for relevant words or phrases in AdWords take place in line with advertisers’ hopes that their ad will appear on search engine results page (SERP) upon searching for products or services.

For instance, a business who sells shoes online may vie for words linked to brands or shoe items in general. KW research is crucial in determining which phrases or words are likely to drive traffic to your website.

Higher rank and relevance of KWs can effectively boost your CTR or click through rate, and quality scores. The relevance, as its name suggests, is a measure of how related a KW is to your advertisements and the extent it matches your message and landing pages. Investing time in writing strong messages with well-researched KWs is bound to pay off with real conversions.

How Google’s Auction Works

When someone makes a search on their browser, the search engine looks at its pool of Adwords advertisers for the need for an auction. Once a search query is made, the request is processed and the auction runs as determinant for the position of an advertisement and cost per click.

The auction gets run billions of times per month, returning billions of revenue for the world’s largest internet search tool. The process benefits all searchers upon finding what they’re looking for, while you connect with the most potential customers at the lowest possible price.

How To Enter The Auction

An advertisement becomes eligible for auction entry every time you bid on a KW associated to a search query. Your bid, your QS, and relevance altogether partake in an ad’s qualification to be displayed on the SERP.

Advertisers identify and pick the KWs to put up for bidding, allocate their budget, and create groupings of KW paired with ads.

Keywords will then be sourced from your Adwords account which Google deems most appropriate and associated with the auction, corresponding to the maximum price you specified and related ads. Once entered into the auction, the biggest search engine of all sets to gauge where you’ll rank.

What is Google’s Ad Rank?

Ad rank is the actual position of an advertisement. It’s basically where the search tool accurately determines which advertising message should be shown where calculated through the formula:

Ad Rank = CPC bid (Max) x Quality Score

The highest ad rank as result of the best-combined max-CPC-bid and QS sensibly gets the foremost position.

What is CPC and How Much Do You Pay?

CPC or cost-per-click is the amount an advertiser has to pay whenever their AdWords advertising message gets clicked on by a user.

Actual CPC value is calculated by dividing the ad’s rank of the person below you by your score on quality. You can expect to pay the minimum amount for the position you win. The exception would be cases where you are the only bidder or have the lowest auction bid, where you have to pay the maximum amount.

What is The Quality Score?

Quality Score determines how related and useful your advertisement is to searchers. The metric is primarily founded on CTR, KW relevance, and landing page quality. The higher QS is, the better in terms of saving you money and gaining better rankings.

A premium position towards the top of the SERP, if not #1, is the ultimate goal of paid search!

About the Author

Tom Koh

Tom is the CEO and Principal Consultant of MediaOne, a leading digital marketing agency. He has consulted for MNCs like Canon, Maybank, Capitaland, SingTel, ST Engineering, WWF, Cambridge University, as well as Government organisations like Enterprise Singapore, Ministry of Law, National Galleries, NTUC, e2i, SingHealth. His articles are published and referenced in CNA, Straits Times, MoneyFM, Financial Times, Yahoo! Finance, Hubspot, Zendesk, CIO Advisor.


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