How Do Google Ads Auctions Work

What is a Google Ads Auction?

The Google Ads auction is a real-time bidding process where advertisers compete to have their ads displayed when a user performs relevant keyword searches. The auction is conducted within a fraction of a second each time a user performs a search on Google.

For advertisers, the goal of the auction is to place at the top of Google’s Search Engine Results Pages (SERPs). Placing ads near the top of the SERPs provides maximum visibility – the first 4 ads account for about 6% of all clicks within Google’s search results.

For Google, the auction provides revenue and it helps to ensure all ads are high quality and that they’re relevant to the user.

The amount an advertiser pays is based on their “bid.” The bid is the maximum amount you’re willing to spend per click for each ad. Depending on your bidding strategy and the level of competition for a particular keyword, you may pay less than your maximum bid amount.

Your bid is a major factor in where your ads are placed within Google’s search results.

Note that while Google uses the auction process to make money, the highest bid doesn’t always win. Google considers lots of factors when deciding where to place ads on the SERPs, which we’ll discuss later on.

How Does the Google Ads Auction Work?

The Google Ads auction is powered by an incredibly sophisticated algorithm. Luckily, advertisers only really need to learn the basics to get started.

Here’s how the process works:

1. Advertisers Target Relevant Keywords

Keywords are the fundamental element of the Google Ads auction.

Google uses keywords to match your ads with user searches. When a potential customer performs a search, Google compares the words and phrases they used with ads submitted by advertisers.

Every ad you create needs to target particular keywords and phrases. The keywords you choose have a big impact on how visible and effective your ads are. The goal is to target keywords that align with your strategy and help you connect with potential customers.

There’s no one-size-fits-all solution when it comes to keyword strategies. Your keywords depend on your business, products, services and customers, so you’ll need to do your keyword research before building a Google Ads campaign.

2. The User Performs a Search

Once you’ve chosen your keywords and published your ads, they will be entered into the ads auction whenever a user performs a relevant search.

Google’s goal is to display ads that are relevant to the user’s query. Remember, Google is the world’s most popular search engine because it provides the highest quality results.
Even when it comes to paid advertising, Google will prioritise ads that are relevant to the user, rather than focusing on ads with the highest bid.

Example of how someone performs a search.

3. Google Compares Keywords

Google hosts millions of potential ads. The sheer volume means there’s no way every ad can be entered into the auction every time someone performs a search.

Before the Google Ads auction can occur, Google compares the user’s search query with the ads in its database. It looks for advertisers that are bidding on keywords which are relevant to the user’s search query.

Example of how a search query could have other relevant keywords.

4. The Google Ads Auction Takes Place!

The Google Ads auction is handled by Google’s supercomputers and takes just a fraction of a second.

Ads that are targeting relevant keywords are entered into the auction. Google compares a few key factors, and the winning ads are displayed in the SERPs.

Given that over 80% of the world’s businesses use Google Ads, a single ad auction could contain thousands of ads. There are only a handful of spots available on the SERPs (see the screenshot below), so competition can be fierce.

Illustration of an auction house. Indicative of how you bid on keywords in Google's auction.

Example of what a sponsored ad looks like in SERPs.

How Does Google Choose Which Ads to Show?

Google decides which ads to show based on a ranking system. The highest ranked ads are displayed on the SERPs.

Your Ad Rank is determined by dozens of factors. While your bid plays a large role, securing the top spot is not as simple as increasing your bid and/or budget.

There are two key factors that determine the strength of your Ad Rank – your ‘Bid Amount’ and your ‘Quality Score’.

Ad Rank and Its Importance to the Google Ads Auction

Ad Rank refers to the position of your ad within Google’s SERPs in relation to other ads. Ad Rank is determined by the following factors:

Bid Amount – This is the maximum amount you’re willing to pay for a click on your ad.
Ad Quality (Quality Score) – This includes factors like the relevance of your ad to the user’s search query, the expected click-through-rate (CTR) of your ad, the quality of your landing page and the relevance and performance of ad extensions.

Higher Ad Ranks typically result in better ad positions, but it’s important to note that the highest bid doesn’t guarantee the top position. Google places significant value on the quality and relevance of ads to ensure a positive user experience.

Ad Rank is calculated with a simple formula:

Ad Rank = Bid Amount x Quality Score

This is a simplified version. Google’s complete formula is a secret that also considers the other factors outlined below.

What Other Factors Does Google Use to Calculate Ad Rank?

If Ad Rank isn’t just your Bid Amount multiplied by Quality Score, what is it?

There are five main metrics that Google uses to calculate Ad Rank:

Maximum CPC – Your Maximum Cost Per Click (CPC) is the maximum amount you’re willing to pay for a keyword.
Search Relevance – This is a measure of how relevant your ad (and landing page) is to the user’s search query.
Ad Format – Google considers how your ad format or campaign type (e.g. text ads vs Shopping ads) will affect the performance of the ad, as well as whether any ad extensions will have an impact.
Landing Page Experience – Every Google Ad needs to point to a page on your website. This is called a landing page. Google assesses the user experience of your landing page. Pages with better user experience result in a higher Ad Rank.
Anticipated Click-Through-Rate (CTR) – Google uses historical data to estimate the Click Through Rate of your ad. A higher CTR results in a higher Ad Rank.

Quality Score and its Importance in the Google Ads Auction

Quality Score is a rating within Google Ads that looks at overall relevance of your keywords, your landing page and landing page experience. It’s measured on a scale of 1-10, with 1 being the lowest and 10 being the highest.

Illustration of how the quality score is calculated.

List of keywords with their quality score, ad relevance, land page experience and expected click through rate.

How to Improve Your Quality Score

Improving your Google Ads Quality Score involves optimising your ads, keywords and landing pages to increase overall relevance and performance. Look into the following elements to improve your Quality Score:

Keyword Relevance – Ensure your keywords are closely related to your ad copy and landing page content. Use targeted keywords that accurately reflect the products or services you offer.
Ad Relevance – Create enticing ad copy that aligns with your chosen keywords. Your ads should communicate what you’re offering and match the user’s search intent. Make sure to include keywords in your ad headlines and descriptions.
Landing Page Experience – Provide a seamless and relevant landing page experience with fast loading times, easy navigation and mobile responsiveness. Make sure your landing page content is closely related to your ad copy and provides valuable information to users.
Click-Through-Rate (CTR) – Aim to improve your ad’s CTR by crafting compelling ad copy and using relevant ad extensions. A higher CTR indicates that your ads are resonating with users and can positively impact your Quality Score.
Ad Extensions – Utilise ad extensions such as sitelinks, callouts and structured snippets to provide additional information and enhance the visibility of your ads.
Negative Keywords – Regularly review your search terms report and add negative keywords to exclude irrelevant search queries. Negative keywords help prevent your ads from being triggered by irrelevant searches, which can improve your ad relevance and CTR.
Ad Testing and Optimisation – Continuously test and optimise your ads to identify which messaging resonates best with your target audience. Experiment with different ad copy, headlines and calls-to-action to improve performance over time.
Campaign Structure – Organise your campaigns and ad groups in a structured manner to ensure relevancy between keywords, ads and landing pages. Use tightly themed ad groups with specific keyword sets to improve ad relevance and Quality Score.

How Does Quality Score Relate to Ad Rank?

Quality Score and Ad Rank are closely related in the Google Ads auction system. Ad Rank determines the position of your ad on the SERP, and Quality Score is one of the key components used to calculate Ad Rank.

Quality Score is used to measure the quality and relevance of your ads and keywords. It considers factors such as expected CTR, ad relevance and landing page experience. A higher Quality Score can lead to a higher Ad Rank at a lower CPC.

Example of how people pay less for their position due to a better ad score

So, even if your bid is lower than a competitor’s, you can still achieve a higher Ad Rank and better placement if your ad is more relevant and has a higher quality score

Cost-Per-Click and its Importance in the Google Ads Auction

Google Ads works as a pay-per-click (PPC) model. That means advertisers are only charged if a user clicks on the ad.

But this is not a fixed, one-size-fits-all price. It’s also not necessarily the advertiser’s maximum bid.

For example, one advertiser may be bidding $3 for a keyword to get ahead of the competition. But, if their ad has a low Quality Score, they could still be beaten by competitors with high Quality Scores and lower maximum bids:

Illustration of how ads with the highest ad rank scores are the ones that show

Learn About the Google Ads Auction to Supercharge Your Digital Marketing Goals!

Google Ads is one of the most effective tools for marketing your business online.

Google Ads gives you access to billions of potential customers from all over the world. The platform is affordable, accessible and it’s suitable for businesses of every size. Better yet, unlike how an SEO campaign can take time, it provides instant results, helping you generate sales, leads, conversions and more!

Getting started with Google Ads is simple. Google provides several options that are suited to anyone who’s willing to put a little bit of effort into their digital marketing.

If it seems daunting, or if you want to make sure your marketing budget provides real results, get in touch with Gordon Digital!

The Gordon Digital team has vast experience in managing Google Ads campaigns. We’ve worked with thousands of businesses from across Australia, using tailored Google Ads strategies to help our clients grow.

Our experts can turn your budget into long-term business growth. Give us a call to find out how, or book a strategy session if you’re ready to launch your Google Ads campaign!

How Do Google Ads Auctions Work?

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