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Understanding the Google Ads Auction & Why Ad Rank Is Important

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Understanding the Google Ads Auction & Why Ad Rank Is Important


The author’s views are entirely his or her own (excluding the unlikely event of hypnosis) and may not always reflect the views of Moz.

There are 3.5 billion searches on Google every day, and 84% of people use Google at least three times per day to search for information.

When there is a search query on Google, Google Ads runs a quick auction to determine which ads will show for that search query, and what the ad positions should be. This ad auction is repeated every time an ad is eligible to appear for a search term out of the billions searched each day.

To determine if an ad is eligible to be shown in the Google search results, and what the position of the ad will be, Google uses a value called Ad Rank. If an ad does not meet the Ad Rank thresholds, it will not be shown. Ad Rank also determines the CPC (cost per click) that the advertiser pays for a click on their ad.

In this post, I cover the main factors that are used by Google to determine the Ad Rank of an ad during the auction, and what those factors mean for your ad strategy.

Understanding the Google Ads auction

How the Google Ads auction works

When a user makes a search query, Google Ads runs a split-second auction of all the ads whose keywords are relevant to it. This will determine which ads are eligible to be shown, their ad position relative to competing ads, and the CPC that the advertiser will pay for a click on their ad.

When setting up Google Ads pay per click (PPC) marketing campaigns, advertisers identify which keywords they want to bid on and set their max CPC bid. The advertiser also sets up ad groups with keywords and creates related ads.

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When there is a search query, the Google Ads auction begins. Here is the auction process according to Google:

  • For every search query, Google Ads finds all the ads whose keywords are relevant to the search terms.

  • The system ignores ads that are not eligible for that location and any disapproved ads.

  • The remaining ads will be evaluated based on their Ad Rank. The Ad Rank is based on the max CPC bid, ad quality, Ad Rank thresholds, search context and the ad extensions and formats used.

The eligible ads that won the auction are shown on the SERP based on their Ad Rank.

The layout of the Google search results page changes constantly. Currently, Google shows three ads above the organic search results and three ads below the search results on each search page. Depending on the popularity of the search term, and the number of qualified ads, ads may be shown on multiple search pages for the search term.

Here is an example of a search for “eye doctors Dallas” that shows three eligible Google Ads above the organic search results:

Figure 1: Ads shown above organic search results for a search query

What is Ad Rank?

The ad with the highest Ad Rank will be shown in the top position of the search results page for a relevant search term. This is followed by the ad with the second highest Ad Rank and so on. Ads that do not meet the Ad Rank eligibility requirements will not be shown on Google.

Ad Rank calculation

Ad Rank = Max CPC Bid x Quality Score plus additional factors like the impact of ad extensions and ad formats, Ad Rank thresholds, search context, and competitiveness of auction.

Thus, spending more does not necessarily guarantee you the best Ad Rank. Here is an example of basic Ad Rank calculations for four advertisers competing for ad positions in the Google Search Results:

Figure 2: Calculating Ad Rank
Figure 2: Calculating Ad Rank

As seen in the example, Advertiser 1 had a lower max CPC bid than the other three advertisers, but was able to qualify for the top ad position because their quality score was high. Advertiser 4, in contrast, had the highest max CPC bid but the lowest quality score, and ended up in the lowest ad position.

Why should you care about your Ad Rank?

Google sets minimum Ad Rank thresholds that will determine if an ad is shown at all on Google.

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In the example in Figure 2 above, there are four advertisers competing for an auction with Ad Ranks of 24, 20, 12, 8. If the minimum Ad Rank to show above the organic search results is 20, only Advertisers 1 and 2 will show above the search results. If the minimum Ad Rank to show below the search results is 10, only advertiser 3 will show below the search results. Advertiser 4 will not meet the minimum Ad Rank thresholds, and their ads will not be shown on Google at all.

Advertisers compete to have their ad shown in the top-most position on the SERP since that leads to a higher clickthrough rate (CTR) and results in more leads. Ad CTR changes considerably depending on your ad position.

The average CTR across all ads on Google Ads is 3.17% in search. But that CTR ranges considerably depending on industry and position, with a “good” CTR for position 1 being 6% or higher.

Even those minor differences in percentage can equate to thousands of clicks more for higher-ranked ads.

With that in mind, let’s dig into the two main factors determining your Ad Rank a bit more.

What is CPC?

Cost per click (CPC) is the price you pay per click on your ads in your pay-per-click (PPC) marketing campaigns.

When you set up a Google Ads PPC campaign, you set the max CPC bid for the keywords in your account. The max CPC bid can be set up at the keyword level or at the ad group level:

  • The maximum CPC is the maximum amount that you’re willing to pay for a click on your ads.

  • The actual CPC is the final amount you’re charged for a click on your ad. Your Actual CPC is determined at the time of the auction and may be less than the max CPC amount.

  • The average CPC is the average amount you’re charged for a click on your ads.

While CPC costs can vary depending on your industry, the average CPC in Google Ads is $2.69 for search and $0.63 for display.

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CPC pricing is also called PPC or pay-per-click. Hence, Google Ads is called PPC or pay-per-click advertising.

How Ad Rank affects actual CPC

Ad Rank also affects the actual CPC you pay for a click on your ads.

Google Ads uses a second-price auction system. The actual CPC you pay is calculated at the time of auction based on your Quality Score and the Ad Rank of the advertiser below you, plus $0.01. Because the auction is dynamic, the actual CPC can vary with each auction.

Google does not disclose the details of how they calculate the Average CPC for Google Ads. According to Search Engine Land, the Actual CPC you pay for a click on your ad is determined at the time of the auction by the following formula:

Actual CPC = (Ad rank of Advertiser below/Your Quality score) + $0.01

Figure 3: Calculating Actual CPC values at each ad position
Figure 3: Calculating Actual CPC values at each ad position

What is Quality Score?

The Quality Score is a diagnostic tool that is used to estimate the overall quality of your ad compared to other advertisers.

Ads and landing pages that are considered more relevant and useful to the search query get a higher Quality Score. This helps to ensure that more useful ads are shown at a higher position on the SERP.

Quality Score is measured on a scale of 1-10, and is available for every keyword. It is based on historical impressions for exact searches of your keyword.

Three factors that determine Quality Score

Quality Score is calculated based on the performance of three main factors:

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Expected CTR

The expected CTR is a prediction of the ad clickthrough rate when the ad is shown on Google. Expected CTR projections are based on user CTR, which helps to decide which ads will perform best when shown for a search query.

CTR is the number of clicks your ad receives divided by the number of times your ad is shown: CTR=clicks/impressions.

Landing page experience

The landing page experience measures how relevant and useful your website landing page is to the person who clicked on the ad.

Ad Relevance

Ad relevance measures how well your ad matches the user’s search intent. It ensures that only the most useful ads are shown for every search query, and prevents ads that are unrelated to the product or service from being shown for a search query.

Each of the three Quality Score factors is given a rating of “Above Average”, “Average” or “Below Average”.

In addition to the three factors above, Google considers additional factors during the real-time auction such as the type of device used, location of the user, time of day, impact of ad extensions, and more.

How to check your Quality Score in Google Ads

Google Ads provides four Quality Score status columns at the keyword level to check Quality Score:

  • Quality score

  • Landing page experience

  • Expected CTR

  • Ad relevance

To check your Quality Score in your Google Ads account:

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1. Log in to your Google Ads account

2. Click on “Keywords” in the left menu

3. Click on the “Columns” icon in the upper right corner of the table

4. Click on “Modify columns for keywords” and scroll to the Quality Score section. Add the following components to your table metrics (see Figure 4):

  • Quality score

  • Landing page experience

  • Expected CTR

  • Ad relevance

Figure 4: Modify columns for keywords to add Quality Score columns
Figure 4: Modify columns for keywords to add Quality Score columns

5. Click Apply

6. Once these columns are added, scroll to the right on each keyword in the table to check the Quality Score and its components (see Figure 5).

Figure 5: Quality Score status columns in the keywords table
Figure 5: Quality Score status columns in the keywords table

7. If there is a “-“ in the Quality score column, it means that there are not enough searches that exactly match your keywords to determine the Quality Score for that keyword.

For information on improving your Quality Score, read these tips from Google.

Conclusion

The Google Ads auction is a real-time auction that is triggered with every search on Google to determine which ads will be shown for that search term, and in what position. The Ad Rank and Quality Score of the ads are important factors in the ad auction and help to determine whether an ad is eligible to be shown on Google. By improving the individual components of Ad Rank and Quality Score, you can improve the eligibility and rank of your ads.

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MARKETING

the second key persona for modern marketing operations leaders

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Marketing operations talent is suffering burnout and turnover

This 4-part series presents a framework that helps rationalize the roles and responsibilities modern marketing operations leaders are taking on. This installment summarizes the framework briefly, and dives into how MOps leaders are now “orchestrators.” 

In case you missed it, part 1 is here.

Inspiration for this framework

Two years ago, marketing technology pioneer and chiefmartec.com editor Scott Brinker outlined the four key responsibilities of marketing technologists, summarized here.  

That work espoused the view that you could be both a marketer AND a technology leader. They are not mutually exclusive! It was my inspiration for this framework, explaining how today’s MOps leaders are instrumental for marketing and business success.

X-Axis:  A range of skills from a focus on technology to creativity and arts

Y-Axis: A range of decision-making skills, ranging from emotional to rational approaches

The resulting grid captures four MOps archetypes or “personas.” MOps leaders exhibit characteristics across all parts of this framework and will operate in multiple quadrants, similar to Brinker’s frameworks.

Modernizers – Are most likely to be the “original” technologists, constantly modernizing their martech stack.

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Orchestrators – Are the closest to Brinker’s Maestros and the focus of this article. He described this archetype in 2020 as the “Operations Orchestrator — MAESTROS who design and manage the workflows, rules, reports, and tech stacks that run the marketing department.

Psychologists – Are now increasingly responsible for “reading customers’ minds,” i.e. interpreting customers’ interest through intent data and digital engagement.

Scientists – Are constantly testing and evaluating. Experimentation is their specialty.

Orchestrators: Leaders of the band

Now that you’re familiar with the framework, let’s dig deeper into the Orchestrators!

I’ll start with a personal story. My exposure to orchestration started with 8-straight years of practice in violin and trumpet during my formative years. Each week was literally a blur of private lessons, group lessons, orchestra and/or band practice. I probably spent as much time with music directors as I did with my family.  

It was painfully obvious to those conductors when we hadn’t prepared or practiced. Moreso, we would get – literally – an “earful” from the conductor when we were not listening to the other instrument sections. If we were not coordinating our efforts and timing, the outcome was awful for anyone listening.

Source: Unsplash

This orchestration metaphor is powerful because there are multiple levels for MOps leaders:

  • As a project management team within marketing, and often as a conductor across external agency partners.
  • As a cross-function business partner and primary contact for IT, compliance, and legal, in addition to the traditional MOps role of achieving marketing/sales alignment

Notably, all marketers have to be project managers for their own tasks/deadlines. They must be aligned with overall campaign and program timelines. 

However, as organizations scale they are more likely to have dedicated project management teams to handle coordination across the specialist teams within marketing. The orchestration responsibility may include timeline, scope, and capacity trade-offs even after campaign briefs have received approval. 


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The orchestration responsibility multiplies when agency execution teams are delivering on individual tactics and media buys. Last year, Optimizely described these evolving orchestration duties as a “transformative shift and approach towards how marketing synchronizes their teams, content, channels, workflows, and data!”

I believe the shift is even more impactful, with orchestration benefits being felt beyond marketing. The highest value “program orchestration” responsibilities occur when MOps leaders are representing marketing’s interests in enterprise-wide programs with other functions within the organization, including product, compliance, and IT. Examples of orchestration duties with these other key functions can include:

  • Product teams – Coordinating campaigns with major product feature/functionality launches, and managing brand standards.
  • Legal/Compliance – Overseeing compliance with Can-Spam, GDPR, and CCPA, and customer preference and data privacy initiatives that may be initiated by a marketing touch-point. 
  • IT/Procurement – Technology stack management, vendor evaluations and negotiations, platform integrations and data management.

All of this departmental and cross-departmental coordination requires skill sets that can be analogized as the difference between a chamber orchestra (marketing) and a full symphony. It’s the highest level of conducting across the enterprise. 

MOps leaders are holding individuals and teams to target timelines while managing the scope of a particular campaign and business initiative. They do this while also overseeing targeting of customer and prospect segments.

In order to accomplish this complex segmentation and coordination, MOps leaders are now responsible for cross-functional data – embodied by the modern martech stack imperative: integration. Integration across systems has been the #1 issue for marketers since the modern marketing tech stack started exploding in the early 2010’s, but software and solutions providers finally listened. A tipping point was reached in 2020. Marketers reported that we were finally working within an integrated, multi-system environment, according to a CDP Institute member survey analyzed here.  

Continuing with the orchestration analogy, the conductor is the integration “synchronizer,” deciding if/when the data flows across the stack. The sheet music is the data model standard showing how to map common attributes. 

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However, just because we now have this more integrated environment does not mean our work is done. The instruments do not play themselves (yet!) and they require configuration and deliberate training to play effectively — both individually and in groups. 

Training was one of the top responsibilities for marketing ops leadership, ranking it in the top 5 of MOPS tasks by percentage of work, according to the 2022 MarTech Salary and Career Survey, published jointly by MarTech and chiefmartec.com (free, ungated download here). conducted by chiefmartec.

In the 2020 version of that same study, training was highlighted as one of the top two responsibilities for many of the primary marketing technologists personas, and 91% of operations orchestrators reported that training and supporting technologies were among their top priorities.

MOps leaders are never done

Finally, under the category of “MOps leaders are never done”, the last several years have also forced a whole new category of orchestration duties – a combination of conducting, training, and martech growth: marketing work management.

The largest growth (67%) over the last several years was in the category of “work management”, according to the 2022 edition of the Martech Landscape. Established entrants such as Adobe expanded with the acquisition of Workfront, while newer players like Trello and Monday gained traction.  

Although this was already a prevailing trend BEFORE the pandemic, the hybrid/remote work environment brought on by the last 2+ years forced these project management and agile-planning tools to the forefront.  The marketing work management category grew to over 1000+ tools, according to the State of Martech 2022

Source: State of MarTech 2022 – chiefmartec.com and Martech Tribe

MOps leaders are Maestros

In summary, modern MOps leaders are indeed Maestros. They are skilled orchestrators, conducting a symphony across multiple levels. They lead:

  • Omni-channel campaigns within marketing and across business functions
  • Integration across an ever-growing, integrated martech stack
  • Training and deployment as one of their primary responsibilities 

Editor’s note: In Part 3 of this 4-part series, Milt will expand on MOps leaders’ growing role as Psychologists. For background on this framework, see Part 1 of this series here


Opinions expressed in this article are those of the guest author and not necessarily MarTech. Staff authors are listed here.


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About The Author

Milt is currently Director of Customer Experience at MSI Data, an industry-leading cloud software company that focuses on the value and productivity that customers can drive from adopting MSI’s service management solutions.

With nearly 30 years of leadership experience, Milt has focused on aligning service, marketing, sales, and IT processes around the customer journey. Milt started his career with GE, and led cross-functional initiatives in field service, software deployment, marketing, and digital transformation.
Following his time at GE, Milt led marketing operations at Connecture and HSA Bank, and he has always enjoyed being labeled one of the early digital marketing technologists. He has a BS in Electrical Engineering from UW Madison, and an MBA from Kellogg School of Management.

In addition to his corporate leadership roles, Milt has been focused on contributing back to the marketing and regional community where he lives. He serves on multiple boards and is also an adjunct instructor for UW-Madison’s Digital Marketing Bootcamp. He also supports strategic clients through his advisory group, Mission MarTech LLC.

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