How Google Ads Works?

The agenda of this article is to create awareness about the PPC Module, how ads auction works, how ads ranking are decided, cost of ads to paying per click and many more. Google ads are powered by an auction bidding market. 

Google Ads = Auction + Bidding

Google ads only work over auction and bidding. Because Google has a limited space to show your ads. Google can show the ads on SERP only at the top or at the bottom of the page. Google ads space is a resource which Google auctioned to the advertisers. In Offline, we see that a product is sold on auction and different buyers bids on the product with a different amount. That product is the main resource on which buyers are willing to spend the amount. So, in Google, Google ads space on SERP is a resource or a product. Every Advertiser bid on it because he also want to rank on SERP by paying some amount to Google But space is limited. That gets difficult for google to rank which ad. Let's see what is the procedure for google ads auction and how google will show ad on SERP.

Google never decides the position of Google ads of the advertiser on the basis of bidding amount. Google has limited space so it will measure different factors of the different advertisers.

Let's take an example:- 

There are 4 advertisers who want to place an ad on Google.

These advertisers want to rank on the same keywords i.e, digital marketing. If the user types Digital Marketing on search Engine, all four wants that their ad must be seen at SERP. They create ads of a different type. They want to rank on google. All four advertiser decides to pay per click. I can only give max $3.00 per click. PPC agency is willing to pay only $4, Xyz willing to pay $5 and ACME willing to pay $6. We will think that I am bidding lowest cost per click and other are bidding more CPC, then oy they will rank, only ACME will rank because it's paying more. But the quality of information or content is higher of mine. if it fares?

Google focus on the best user experience. Google wants to deliver the best page experience to the user it can be paid or organic results.

Google measures other factors also other than CPC i.e., Quality score and Max CPC. These factors make Google search results biased free.

Ad rank = Max CPC X Quality Score

Points on which Quality Scores depends:-

1. Your click-through rate (CTR)

2. The relevance of each keyword to its ad group.

3. Landing Page quality and relevance.

4. The relevance of your ad text

5. Your historical Google Ads account performance.

These are the factors, we must focus to increase the quality score and gain a good quality score. So this is clear that quality score depends on relevancy and user experience. 

Back to the example:- Four advertisers gain the quality score according to the relevancy and user experience.

Our ad rank is 24

PPC Agency Ad rank is 20

XYZ Ad rank is 15

ACME ad rank is 12

Max Ad Rank got the high rank as compare to another three advertisers, so we will get the position first to rank on the google page. Now, Advertiserbwas willing to pay the Max CPC but is not the actual CPC which google charge for google ads. Max CPC means the maximum amount advertiser can pay to google if the user clicks on the ad.

Now actual CPC is calculated as

CPC = ad rank of ad below you/ Quality score + 0.01

CPC = 20/8 + 0.01

= 2.5+0.01 = 2.51

The actual amount is 2.51 which google will actually charge.

So, it is not necessary that the same amount of CPC you have to spend which you bid at the time of auction. 

How much Should I pay for a click?

It is a big question that how much amount we should bid for CPC. It is a process to find your CPC.

For example:- a product you are selling of ₹100 and it's cost price is ₹80. The profit you are gaining is ₹20.

Now you know that if you have 10 visitors to your site and only 1 visitor will make a purchase that means conversion rate is only 10% and we bid ₹2 on per click and we get 10 visitors then Total Click Rate = 2 X10 = ₹ 20

That means you spent ₹20 on ad and profit is also of ₹20. So, this is the situation of no profit and no loss.

To avoid this situation, we have to check the average CPC on keywords which we want to rank on. If the CPC of a keyword is less, which can give profit then that average CPC will be out max CPC. We will only take that CPC which is below the situation of No Profit No Loss. We can handle CPC but Quality score is also such an important factor that we need to increase so that position or rank of our as didn't suffer.