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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.

De 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:

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

  • De 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.

  • De 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 Sökmotorland, 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.

Slutsats

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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Google delayed third-party cookie deprecation: Why and what’s next?

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Google delayed third-party cookie deprecation: Why and what's next?

Google blindsided the marketing and reklam- industry last month by pushing back third-party cookie deprecation in Chrome until at least late 2025. The reason? Feedback on the Privacy Sandbox initiative suggested much more testing was needed.

There’s no simple answer to why Google did this — but there are a number of possibilities we explored with Andrew Frank, distinguished VP analyst at Gartner covering marketing and reklam-.

What is Google’s motivation? ”I’m not sure how fruitful it is to try to analyze Google’s motivations; I’m not sure that the company really acts or speaks with a single voice on some of these topics,” said Frank. “It’s pretty clear that whatever they had hoped to accomplish with the Privacy Sandbox is proving more elusive than perhaps they thought it would.” This, he admitted, was “sort of a non-answer.”

Frank pointed to the absence of action by industry standards bodies and recalled a conversation from two years ago — around the time Google launched the Sandbox — with a representative of WC3. “I asked why we were letting Google make the rules for something as fundamental as how browsers work. Their answer was, ‘Google will get it done faster, because they don’t have all the complicated requirements of a standards body – public commentary, and so forth.’ Looking back, it’s kind of ironic, because if that really was the reason to let G run ahead with this, it couldn’t have been much slower than what we’re seeing now.”

Ironic too that the IAB, the U.S. reklam- standards body, is calling out its own members, demanding “less incrementalism and more burning impatience.”

Läs nästa: Google försenar återigen utfasningen av cookies från tredje part

You put FLoC in, you take FLoC out… The other major and related u-turn Google accomplished earlier this year was the abandonment of the Sandbox’s most prominent solution, Federated Learning of Cohorts.

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“It’s ironic that G puts out an acronym like FLoC,”‘ Frank agreed, “and the entire web community worldwide is rushing into the engine room to try to figure out how to make it work — and suddenly it’s, like, forget that idea.”

The shadow of ADPPA. We recently speculated that the possible bipartisan passage of the American Data Protection and Privacy Act might be serving to put a brake on Google’s progress, writing that: “The specter (benevolent or otherwise) of this legislation is hovering over the many attempts out there to develop alternatives to third-party cookies, including Google’s own Privacy Sandbox initiative. Will the identifiers already on offer, or in development, be in compliance with this legislation if it passes?”

“It’s a plausible theory,” Frank agreed, “and if that is the case we can expect more delays. It seems like that Act is now subject to a lot more controversy than maybe it was a few weeks ago when we had the Dobbs ruling that overturned Roe v Wade. Now it seems that a lot of the focus and anxiety is around protecting health data. Maybe I’ll be surprised and this will sail through the Senate; but I’ve never gone wrong betting against the efficacy of the U.S. legislative process.”

The state of alternative identifiers. Countless adtech vendors have made more or less progress developing alternative routes to addressability, usually consisting of first-party data supplemented by data from other sources, appended in a non-privacy-threatening way. In various flavors, these alternatives have been advanced by many vendors, perhaps most prominently The Trade Desk, LiveRamp and Lotame. Are they frustrated that the need for their solutions has become less pressing?

“I think it’s a two-sided coin,” said Frank. “On the one hand, it must be frustrating, because it’s giving people a reason to delay. On the other hand, it’s given them more time to refine and test their solutions and get them right and get buy in from people who may be reluctant — especially on the publisher side where I think a lot of these alternative solutions are foundering a bit.”

Why is there a lack of adoption among publishers? “Unified ID 2.0, The Trade Desk’s solution, has got extensive buy-in from the adtech community, even the SSP community; where it hasn’t seen much success has been with large publishers, companies that have their own idea about how to deal with privacy. Some publishers are concerned that it might somehow degrade the value of their first-party data; there’s a sort of competing idea about seller-defined audiences, and the publishers think that if they can own the targeting and measurement side they’ll have higher yields.”

Another setback was the IAB deciding to pass on being the “administrator or shepherd” of the standard. “That highlighted the difficulties in transitioning this, or any other standard an adtech company might come up with — to a neutral standard that is owned by the industry. That is what I think we ultimately will need.”


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Få det dagliga nyhetsbrevet som digitala marknadsförare litar på.


A year from now. What if, a year from now, Google punts it back to 2026? “It’s the Chicken Little story,” said Frank. “You can’t continue to be surprised by the same thing over and over again. It does seem like there’s a limit to the number of times they can pull this off – but maybe there isn’t. Maybe they;re not feeling the pressure to do anything differently. It’s not clear what the cost to them of delaying this is.”

Varför vi bryr oss. We have some views on what’s happening here, but it’s obviously good to get input from an independent expert. The takeaways? We are free to guess at what Google is doing, but it’s a multi-headed monster. Google itself might not have one, single view on the need for the delay.

Whats more, it could absolutely happen again — and might keep happening until we know if the federal government is going to act on data privacy or dropm it and move on.


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Om författaren

Kim Davis är redaktionschef för MarTech. Född i London, men en New Yorker i över två decennier, började Kim täcka företagsprogramvara för tio år sedan. Hans erfarenhet omfattar SaaS för företaget, digital-reklam datadriven stadsplanering och tillämpningar av SaaS, digital teknik och data i marknadsföringsområdet.

Han skrev först om marknadsföringsteknologi som redaktör för Haymarkets The Hub, en dedikerad marknadsföringsteknologiwebbplats, som sedan blev en kanal på det etablerade direktmarknadsföringsmärket DMN. Kim började på DMN proper 2016, som senior redaktör, och blev Executive Editor, sedan chefredaktör en position som han hade till januari 2020.

Innan han arbetade med teknisk journalistik var Kim associerad redaktör på en hyperlokal nyhetssajt i New York Times, The Local: East Village, och har tidigare arbetat som redaktör för en akademisk publikation och som musikjournalist. Han har skrivit hundratals restaurangrecensioner i New York för en personlig blogg och har varit en och annan gästbidragsgivare till Eater.

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