Stop Wasting Money This Is How Google Ads Works

Year over year, businesses increase the amount they spend on Google ads. In 2019, businesses in the US spent about $41.80 billion on Google ads. The following year, they increased their spending to $44.06 billion. 

Today (in 2022), the number has nearly doubled, with businesses spending a whopping $70.15 billion on Google ads. And if the current trend is anything to go by, we expect it to hit $81.04 billion by 2024.

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As you can see, the issue isn’t Google ads. If it were, people wouldn’t be spending that much money on them. The issue has to be with the way people use Google ads.

How are they optimizing their ads and structuring their campaigns?

There has to be something that they’re doing wrong, and we’re here to help you fix that.

In this guide, I want to take you through one of the core concepts of Google ads — and that’s how does the Google ads algorithm work?

Every time we review a Google Ads account belonging to a client, we see the same issue – and that is, their ads aren’t structured properly to see success with Google ads.

How Google Ads Algorithm Works

You need to understand that, with Google ads, the ultimate goal is to match the searcher’s query with the best landing page.

We’re not talking about a website but a landing page. 

Google doesn’t look at your website as one big blob of content. It looks at it as a collection of different web pages, each matching a different query.

The algorithm matches the searcher’s query with the best landing page. 

When you understand this, it makes perfect sense to see why Google has built a core metric system called Ad Rank.

Ad Rank

An Ad Rank is the system Google uses to determine which ads will appear in the search results. It’s a formula that considers several factors, including Quality Score, bid amount, and ad extensions. 

The core metric has everything to do with user satisfaction. Google is trying to ensure that the user’s search query has been successfully answered.

The higher your Ad Rank, the higher up in the search results you’ll appear for a given keyword or set of keywords.

Google serves its ads in an auction-based system. However, their auction isn’t the same as eBay’s and isn’t based on the highest bid. It’s based on a combination of factors, such as Quality Score and the bid amount.

Here’s the formula that Google uses to determine the winning ad:

CPC Rank + Ad Rank = Ad Position

Your CPC Rank is the amount you are willing to pay for a click on your ad. 

Your Ad Rank is determined by how relevant your ad is to the searcher’s query.

It competes in an auction against other ads for that query, and the ad with the highest Ad Rank and CPC Rank gets served the highest in the search results.

So, How’s Ad Rank Determined?

Ad Rank is a combination of six different factors:

#1. Your bid amount – your CPC rank: How much are you willing to pay for a click? Well, in a typical auction, whoever bids the highest wins. But, as we already mentioned, the bid isn’t all that matters.

Here’s how your CPC ad amount works:

When setting up your bid, you’re simply telling Google that that’s the highest amount you’re willing to pay for a click. Of course, you’ll end up paying less than that because your CPC ads amount is based on what other advertisers are bidding. But the more you’re willing to pay, the higher your ad will rank.

#2. The Quality of Your Ads and Landing Page: Google is looking for ads and landing pages relevant to the searcher’s query. So, if your ad copy and landing page match the query, you will likely get a higher quality score and Ad Rank. 

Google even allows you to monitor your Quality Score and improve on it.

#3. The Ad Rank Thresholds: Your ad rank threshold determines your ability to compete with other advertisers in the auction. It’s based on a combination of factors, including Quality Score and your bid amount.

#4. The Auction Competitiveness: If two ads compete in the same auction, the ad with the highest Ad Rank will be served first.

But what if they both have a similar ad rank?

Then they’ll both have a similar opportunity to win that position. But as the gap between their ad rank grows, one will start to have a higher chance of winning the position, forcing the other ad to pay a higher CPC to stay in the competition.

#5. The Context of the Searcher’s Query: Google considers the context of the searcher’s query. If you’re targeting a keyword or phrase related to your product, Google will recognize that and adjust your ad rank accordingly. 

Google will also check the searcher’s location, device, time frame, and other factors to ensure they deliver the best possible results. 

#6. The Expected Impact of Your Ads: Finally, Google considers your ads’ expected impact. They may adjust your ad rank accordingly if they think you’re likely to generate more clicks and conversions than other advertisers. 

When creating your ad, you have the option of adding more information to the ad, including your phone number, link to specific pages, etc. 

Google refers to this information as your ad assets, and if they think these will positively impact the searcher’s experience, they may adjust your ad rank accordingly. 

Simplified Example of How Ad Rank Works

Google even offers a simplified example of how ad rank works. 

The example doesn’t account for all the factors we’ve mentioned, but it paints a good general picture of how the auction works.

Assuming we have five advertisers with a representative ad rank of 80, 50, 30, 10, and 5.

A = 80

B = 50

C = 30

D = 10

E = 5

If the ad rank required to show above organic search results is 40, then only A and B will make it onto the page, while C, D and E will be outbid.

If the minimum ad rank required to show below organic search results is 8, then C and D make the cut, while E is outbid. 

Advertiser B will have 1 impression at the top, while advertiser C will have 0 impressions at the top, same as advertisers D and E.

So, how can advertisers B and C increase their chances of making it to the absolute top?

Simple, they have to work on improving their ad rank by:

• Improving the quality of their ads and their landing pages, 
• Increasing their CPC bid amount (or manual CPM bid amount), 
• Expanding the number of ad assets they’re using, and 
• Optimizing the context of their ads for better relevancy. 

And that, my friends, is how Google Ads work

Foundation Mistakes People Make With Google Ads

Let’s start with the hard stuff first.

These are mistakes that a simple Google ads account audit won’t identify, let alone fix. 

And yes, they cannot be corrected by toggling a setting on and off in your account. 

The foundation mistakes people make with Google ads have to be corrected at the root — and that is, their website, mindset, grit, and approach to Google ads. 

These are much deeper issues that take a lot of time, effort, and money to correct.

Mistake #1. Venturing Down the Wrong Path

The first mistake people make is going down the wrong path. That is, they’re unclear about what they want to achieve with Google ads. 

So, they end up tracking the wrong things, tracking too many things, or not tracking anything at all.

The problem with not tracking anything at all is an obvious one. You can’t possibly learn, improve, or grow if you’re not tracking anything. 

The issue with tracking too many things is that you’ll never be able to focus on the important stuff. And in Google ads, attention to detail is key. 

The problem with tracking the wrong things is that you might be tracking vanity metrics that don’t actually matter. 

For example, you might be tracking clicks when you should be tracking conversions. In other words, you’re focused on the wrong thing.

The key here is to be clear about what you want to achieve before you can start tracking anything.

From the above screenshot, it’s easy to think the company had 186,146 conversions (circled in red) last month. 

But if we look closely, we see that they only had 3238 transactions. 

So, where’s the confusion coming from? 

The confusion is coming from the fact that they’re tracking the wrong thing. 

They have their tracking set for every micro conversion on the website — which is not what they should be tracking. 

They should be tracking sales, not micro conversions. 

The key here is to be clear about what you want to achieve with Google ads and then track only those things that will help you achieve your goals.

Mistake #2: The “How do We Save Money” Mindset

The second mistake people make is approaching Google ads with a mindset of saving money instead of optimizing returns. 

They’re focused on the amount they’re spending instead of the amount they’re making. 

This mistake often leads to sub-optimal decisions that may cost you a lot of money in the long run. 

You can save money by lowering your CPC and CPA, but that might not be the best thing to do.  

The key here is to focus on optimizing your return on investment (ROI) instead of saving money. 

A healthy paid search program requires a reasonable, workable budget. 

You must be willing to spend money to make money. 

While that doesn’t mean flashing money around like it’s nothing, it does mean being willing to loosen your purse strings while keeping a firm grip on your ROI. 

The ironic part is that clients may want to spend more because they see the need to fuel the fire, but the agency is trying to save money by capping the budget.  

Or, the agency isn’t transparent about where the money is going, and the client is getting frustrated because they don’t see results. 

The key here is to have a healthy relationship with your agency or in-house team and ensure you’re on the same page regarding the budget.

Mistake #3: Post-click Blindness

The third mistake people make is what I like to call post-click blindness. 

They’re so focused on getting the click that they don’t think about what happens after someone clicks on their ad.

• Instead of a well-defined landing page, they’re taken to a cluttered homepage with no definitive call to action.
• They’re directed to a landing page that loads like molasses.
• They’re directed to a landing page whose message conflicts with the one on your ad.

Make sure your landing page has a clear call to action. You also want to make sure that it loads quickly. And most importantly, ensure the message on the page reinforces what was said in the ad. 

The idea is to put as much effort and thought into what happens after someone clicks on your ad as you did into getting them to click it in the first place.

The post-click elements can be a subject of internal conflicts between the agency and the client. 

For example, the agency wants to deliver a specific experience based on best practices, but the client might want something different. 

The key here is to have an open, honest conversation about what will work best for your business.

You might also find that the PPC person wants one thing, the SEO person wants another, and the web development team is obsessed with ensuring the page loads in two seconds. 

The key is finding a balance and ensuring everyone understands what’s most important. 

At the end of the day, it all comes down to getting the best return on your investment. 

Google Ads can be an effective tool for driving leads, sales, and brand awareness — but only if you use it right.

#4. Lack of Fortitude

The fourth mistake people make regarding Google Ads is a lack of fortitude. 

People are so focused on the short term that they don’t consider their long-term goals. 

They’ll jump from one campaign to the next without giving their campaigns a chance to succeed or fail.  

On top of that, they’re impatient when waiting for results. 

They expect their campaigns to hit the ground running instead of giving them time to grow and mature. 

The key here is to be patient and have a long-term mindset. 

Google Ads is not an overnight success solution; it takes time, effort, and dedication to get the most out of it.

You must be willing to make mistakes and learn from them. 

The best advertisers are the ones that are constantly testing, measuring, and optimizing their campaigns.  

They’re not afraid to try new things or take risks when improving their results. 

Google Ads can be an incredibly powerful tool for driving leads, sales, and brand awareness — but only if you take the time to understand how it works and apply best practices.

#5. Missing the Forest for the Trees

The fifth mistake people make regarding Google Ads is missing the forest for the trees. 

They become so caught up in making sure their campaigns are technically perfect that they forget to ask themselves what matters most: Is this campaign helping me achieve my business goals?

While there’s nothing wrong with some little adjustments to your ad account, don’t forget to step back and take a deep look into the big picture. 

• Are you getting a good return on your investment? 
• Are you reaching the right people?
• Is your message consistent across your campaigns? 

Make sure your technical efforts are helping you reach your goals.

The takeaway is that Google Ads is a complex system with many moving parts. 

It’s important to take the time to understand how it works and apply best practices, but don’t forget about your business goals in the process.

If you can combine technical proficiency with strategic thinking, you’ll be well on your way to success with Google Ads.

Easy-fix Paid Search Mistakes

Google Ads can be an incredibly powerful tool in driving leads, sales, and brand awareness — but only if you use it right. 

Avoiding these six mistakes will help you get the most out of your campaigns and ensure that you’re optimizing your campaigns for success.

#6. Search Terms and Keywords

The last thing you want is to bid on the wrong search terms and keywords. 

Not only will this waste your budget, but it can also damage your brand if customers get irrelevant results when searching for you.

For example, if you’re a plumber and your ads show up when someone searches for “home inspector,” that’s clearly not the right audience. 

Bidding for the wrong set of keywords means you’re wasting your money on clicks that don’t yield results. 

The key here is to do good keyword research and ensure you accurately understand what terms and phrases are related to your business.

You also want to regularly monitor your search terms report to refine and adjust your targeting.

#7. Optimization Score

Following all of Google’s recommendations doesn’t necessarily mean you’re getting the most out of your campaigns. 

You might have a 100% optimization score but still, miss opportunities to drive more leads and sales.

The key here is to use Google’s recommendations as a starting point, but don’t be afraid to experiment and test different strategies. 

Implementing Google’s recommendations will bring mixed results at best and won’t necessarily get you the most out of your campaigns. 

You want to question every recommendation and only run with it if it makes sense for your business goals and strategy. 

In most cases, you’ll find that your campaign will level up at about 80% instead of 100% full throttle, and that’s perfectly fine. 

The bottom line is, don’t get too caught up in reaching a 100% optimization score. Instead, focus on what matters to your business and use that as a benchmark for success.

#8. Enhanced CPC

With Enhanced CPC, Google automatically increases or decreases your bids depending on the expected likelihood of a conversion.

Although this can be a great way to save time and increase conversions, it can also be a common pitfall if poorly managed. 

Enhanced CPC is an automated bidding system that automatically adjusts bids on a keyword-by-keyword basis and can quickly get out of hand without proper monitoring.

Google turns on Enhanced CPC by default, but it’s in your best interest to manually toggle it off if you’re unsure of the results.

I suggest you test it out first on a smaller budget and see what kind of results you get before ramping up to the full budget. 

Take the time to understand how Enhanced CPC works, monitor your campaigns closely, and adjust your bids accordingly.

#9. Ad Extension

Ad extensions are an awesome way to give your ads more impact. 

They can dramatically improve the click-through rate of your ads as they provide additional information and context to users searching for your products and services.

A common issue is not utilizing all the relevant ad extensions because each [extension] offers an excellent opportunity to attract more clicks. 

You don’t want to miss out on potential customers just because you didn’t include enough information in your ad.

Even more important, you need an ad extension strategy to ensure you’re taking full advantage of every relevant one of them. 

For example, if you’re a service-based business, you want to use Sitelinks to direct users directly to the page that contains the information they need. 

Using ad extensions correctly can significantly increase your click-through rate and give you an edge over your competitors. 

Take the time to learn about all the ad extensions and figure out how to best leverage them for your campaigns. 

For example, if you have an extension for “free shipping,” use it prominently on the ads you’re running for products with free shipping. 

#10. New Ads and Ad Groups

Google is always introducing new ad formats and features to make your campaigns more efficient. 

You want to stay up-to-date with all the new developments to take full advantage of them and get the most out of your campaigns.

For example, if Google introduces a new ad format for Dynamic Search Ads, it could help you capture more relevant traffic and increase conversions.

You also want to pay attention to the new campaigns that Google Ads is rolling out, as they present an excellent opportunity for you to improve the results of your existing campaigns.

#11. Audiences

Every time you run a new ad campaign, you want to ensure you’re utilizing the right audiences to get the best results.

You should start by revisiting your old audiences to see if they still apply or if there are any untapped opportunities. 

Remember, you’re not starting from scratch every time you launch a new ad campaign, so use audiences from past campaigns as a starting point.

Beyond that, you should also focus on creating new audiences more tightly tailored to your current goals. 

It’s important to test different audiences and determine which ones drive the most conversions for your business.

Stop Wasting Your Googles Ads Budget

Google Ads can be incredibly powerful for driving traffic and conversions, but wasting money is easy if you don’t pay attention to the details.

By reviewing and optimizing the 11 areas discussed above, you can make sure that every dollar you spend on Google Ads is doing the most it can for your business. Start by setting a budget and understanding how Google Ads works, then focus on each of these 11 areas to maximize your return on investment. Good luck!