If you’re interested in Pay Per Click (PPC) advertising, Google AdWords is an auction-based system that allows you to set a maximum bid for each click on your ad.
Whenever a term triggers your ad on AdWords, you compete in a real-time auction. AdWords is a ‘Vickery’ auction system. Once a winner has been determined in a Vickery auction, the winning bidder pays only one penny more than the second-highest bidder. In Google AdWords, however, Ad Rank, rather than the highest bid, determines the successful advertisers.
If you want to participate in the Google AdWords PPC Programme successfully, you need to have a firm grasp of how Google AdWords ranks PPC bidders to decide who has won each of the real-time auctions.
AdWords Quality Score from Google
Google AdWords’ method for choosing who wins a pay-per-click auction is predicated on the idea that everyone benefits from ads with a high level of artistic quality. Everyone is said to win when Google advertising is relevant to users, including the advertisers, users, publishers, and Google itself. The term “relevance” is used to describe this phenomenon.
Your aim as a Google advertiser should be to achieve the highest possible position for your ad at the lowest possible cost per click (CPC), given that the winning bidder receives the top part and the most elevated position gets the most clicks.
After search results in an auction, Google uses “Ad Rank” to order the winning ads. The ‘Ad Rank’ of an advertisement determines its placement.
Ad Position = (Maximum CPC) x (Quality Score)
The highest bidder is not always the winner because the ‘Ad Rank’ takes into account more than simply the amount an advertiser has bid. The Google Quality Score incorporates several other factors into determining the winning offer.
Your actual cost-per-click will be heavily influenced by Google’s Quality Score, based on how relevant your ad is to users. This means that AdWords advertisers need to understand how to maximize their quality score on Google to succeed in today’s market.
We don’t know how Google determines the Quality Score because that information is confidential.
Google tells us that the clickthrough rate (CTR), the keyword’s performance over time, the relevance of the ad content, and other relevancy variables (including the landing page of the target URL) all contribute to the Quality Score.
The Relationship Between Google’s Quality Score and PPC
A higher Quality Score indicates that the ad is more appropriate for the keywords to which it is matched. The clickthrough rate (CTR) of advertisements is measured by the number of times the user clicks. This tells Google that people are interested in the ad and think it will provide them with helpful information. An improved Quality Score for a given term leads to a higher Ad Rank. This is great news for pay-per-click advertisers, implying they can keep or improve their ranking while paying less per click.
Ads for keywords with a poor Quality Score are also removed from Google’s system. If an ad’s Quality Score is low for a particular keyword, Google will stop using that keyword because it is not generating enough relevant clicks.
How Google’s Quality Score Functions in Practice
Due to the inherent uncertainty of the Quality Score of competing bids, Google AdWords’ PPC bidding system is notoriously difficult to navigate.
Here is an example of how the Google AdWords system might choose the winner of an auction and the cost per click, assuming that the Google Quality Score is used.
In this example, I’ve just used 5 PPC bidders to show how the process works, but there are usually many more.
Look at the Actual CPC’ column below to see how much each AdWords bidder ultimately paid for their click.
Cost Per Click Quality Rating Actual Cost Per Click for Ads
Noddy 3 £0.55 1.7 £0.34
One Pound, One Dollar, Eighty-One Pence Big Ears
One Personal Computer: £0.80; Eighty Cents: $0.41
Bill 2 £0.20 0.4 £0.11
Ben 1 £0.20 0.2 £0.01
Google uses each bidder’s Ad Rank to determine the amount each will pay for PPC ads. Multiplying the Maximum CPC by Google’s Quality Score yields the Ad Rank. According to the Ad Rank table above, Noddy has won the PPC auction, and his ad will appear above the organic search results.
After negotiating with Google, Noddy learned he had to pay an extra penny per click (£0.35) to maintain his Ad Rank above the next highest bidder. Here’s how we got there:
‘Actual CPC’ = ‘Ad Rank of Next Highest Bidder’ / ‘Quality Score of Winning Bidder’ + 1p
That is, in our case:
Ad Rank (‘Big Ears’) / Quality Score (‘Noddy’) + 1p
= £0.34p
Big Ears and PC Plod, PC Plod, Bill, etc., all follow the same reasoning.
As you can see from the comparison above, Noddy’s cost per click is significantly lower than that of his competitors Big Ears and PC Plod, since Google prefers his ad due to its relevance.
Using this logic, Big Ears would have to pay an enormous £1.66 per click to replace Noddy if all other variables remained the same.
As demonstrated by this example, any PPC advertiser faces the danger of paying dearly for their misunderstanding of the Quality Score notion.
Pay-per-click management is Sayu Ltd.’s bread and butter. We can maximize the efficiency of our clients’ Internet advertising campaigns while decreasing their overall ad expenditure through cutting-edge statistical methods, long-tail marketing, and custom-built automated bidding software. Please visit http://www.sayu.co.uk for further details.
Our latest White Paper, Google Adwords: Leveraging the Long Tail to Maximize Your Return on Investment, May Also Be of Interest to You. This demonstrates how long-tail marketing strategies can attract the same amount, if not more, of your target audience at a considerably lower cost.
Read also: Why it’s getting so big About Lead Generation.
