How Does Google Ads Work?

Understanding how Google Ads works is the difference between success and failure in PPC advertising.

This subject is somehow intimidating, so I’ll try to simplify it as much as possible. Don’t worry if you don’t get it the first time (it took me about 3 times to understand it.)

and if you don’t like reading, just watch the video at the end of this post.

Now get some coffee, and prepare yourself for some math operations. Don’t say I didn’t warn you 😉

The first fact you need to know is that Google Ads works as an auction…

Every time someone searches for a keyword phrase, Google starts an auction among advertisers who target this keyword in their ad campaigns.

Normally in auctions, the one who has the highest bid wins. This is NOT the case here.

Google decides who gets the first position and any subsequent position based on what they call “Ad Rank.”

Most Google advertisers think they need to raise their bids to rank higher in the auction. Some other veteran advertisers believe that the quality score (QS) is what matters in the ranking process.

Well, the truth is: It’s a mix of both.

So the formula is as follows…

Ad Rank = QS x Bid

This formula means that even if you bid $9 for a specific keyword, another advertiser can bid $1 for the same keyword and still rank above you!! Sounds crazy, right?

No, not crazy. If your QS is 1 and you bid $9 then, your ad rank will be 9.

While if the other advertiser has a QS of 10 and bids $1, his ad rank will be 10. So he beats you.

And on the other hand, if your QS is 5 and you bid $3 then your ad rank is 15. So if the other advertiser has a QS of 6 (which is better than you) and he bids $2, then his ad rank is 12. This means you outrank him.

So let’s discuss this formula in more detail…

What is Quality Score (QS)?

Quality Score is a formula used by Google to decide the quality and relevancy of your ads, keywords, and landing page to what users are looking for. Google gives that a score of 1 to 10. With 1 being the lowest and 10 being the highest.

When your QS increases, Google will reward you by lowering the amount you pay per click (CPC) and vice versa.

So, what are the factors affecting your quality score?

QS is calculated for every keyword, and a Google Ads account as a whole.

Google says that the main factors that affect a QS for a keyword are:

• Expected click-through rate (CTR)
• Ad relevance
• Landing page experience (quality & relevance)
• Historical account performance

The last one was not announced directly by Google, but it is clear it plays a role in the QS based on many studies and results. So you may like to drop some underperforming campaigns, so it doesn’t affect your account history (this is a suggestion, not final advice.)

1) Expected CTR: as you see, this is what Google expects for a particular keyword based on the ad it triggers and different historical data. In other words, how this ad is likely to be clicked when shown for that particular keyword.

Of course, if your ad gets the clicks that Google expects, they will reward you by increasing your QS (this has happened to me many times.)

2) Ad Relevance: how your ad is relevant to the particular keyword that triggers it. (hint: having your keyword in the ad’s headline can -but not always- increase ad relevance and CTR.)

3) Landing Page Experience: this is how Google sees your website’s landing page in regards to relevance and usefulness to people who click your ad.

Though no one knows the value of each of the above 3 factors in determining the QS of a particular keyword, we are aware that the most important factor is CTR. Even by logic, when people click more on an ad, this means it’s relevant to what they search for.

There are 3 values for every one of the above three factors; below average, average, and above average.

So if you want to improve your QS, you want to improve the elements that show below average or average status.

You can show the above metrics by customizing columns at the keyword level of any ad campaign.

When you are starting, Google used to give all keywords an average QS of 6 then increase or decrease based on ad performance. But this is not the case anymore. You’ll see the QS area blank for some time till this keyword has some data then they assign a QS for it.

What QS should you aim for?

In a nutshell, any QS below 5 is not good, and you should consider deleting this keyword or improving the ad or landing page.

5 and 6 are fair. No more, no less.

7 and 8 are good.

9 and 10 are excellent.

Actually, if you have a QS of 10, then you’ll be able to control the ads auction. All you need to do then is to raise your bid till you are in position 1. Your competitors will not be able to continue an auction like this and will quit sooner than later.

(QS of 10 usually happens in branding campaigns when the keyword is your brand name. However, it can happen sometimes for non-branded search terms!)

How to Check Quality Score?

1. Log in to your Google Ads account
2. Click the “Campaigns” tab at the top of the page
3. Choose the campaign you want to analyze
4. Click the “Keywords” tab
5. You should now see the QS column there
6. Look for the QS of each corresponding keyword
7. To see the three QS factors, click “columns” and then scroll down to the “Quality Score” section, expand it, and check the 3 factors, then hit apply.

Now you know how Google decides the QS for every keyword, and of course, you understand what bidding is (just in case: it is the maximum amount you tell Google you want to pay when this particular keyword triggers your ad to appear.) Let’s go back to our ad rank formula.

What you pay for a click is not necessarily the maximum of your bids. The truth is that your CPC is the lowest amount of money needed for you to hold this position.

For example; with everything else equal, if the advertiser below you bids $5 per click, then you need to pay $5.01 to stay above him. Even if your bid is $10.

Let’s get more complicated with maths 😀

Suppose you bid $4 for a keyword and your QS is 7 then your ad rank = 7 * 4= 28

The advertiser below you bids $6 with a QS of 6 then his ad rank = 6 * 6=36

In this case, he’ll outrank you. So what should you do?

Either improve your QS or increase your bid.

Let’s say you tried to improve QS, but no use, how much should you bid in this case?

The answer is the lowest amount possible to outrank him which is $0.01 above the bid needed to make your ad rank equal to 36.

So you need to divide the other advertiser ad rank by your QS then add $0.01.

Here it would be 36/7 + 0.01 = 5.14 + 0.01= 5.15

This means you need to bid $5.15 to stay above the other competitor in the ad auction.

Even if you bid higher than $5.15, Google will still charge you $5.15 per click to keep your position.

Is it difficult? Fine, forget about it. You won’t know other advertisers’ ads ranks anyway 😀

However now you understand how Google Ads works, so you don’t go crazy about increasing your bids. In reality, sometimes the advertiser in position #1 can pay lower than the advertiser in position #2.

With that said, please watch this video from Hal Varian; the chief economist at Google where he explains the ad auction process in detail (Hal recorded this video when the program’s name was Google AdWords)…