If you’re wondering what Google Ads is, how it works, and how you can use it to grow your business in a cost-effective way, then you’re in the right place! Check out our epic Google Ads auction infographic and FAQs below.
Update! View the same infographic below plus an updated explanation here: How Does Google Ads Work? The Complete, Visual Guide
What is Google Ads? Google Ads, AKA Google AdWords, is Google’s advertising system in which advertisers bid on certain keywords in order for their clickable ads to appear in Google’s search results. Since advertisers have to pay for these clicks, this is how Google makes money from search. This infographic will help you understand how Google Ads works, detailing the Google Ads auction, bidding process and explaining important factors like Quality Score and cost-per-click. If you’re asking “How does AdWords Work?” this page is for you.
Does Google AdWords work? Depending on the competitiveness of the keywords you’re bidding for and the relevancy of that keyword to real conversions for your company, AdWords may or may not work for your business. For the most part, we’ve found that Google AdWords is extremely effective for many kinds of businesses, as long as they don’t waste their money on the wrong keywords, or write weak, low CTR ads.
Many factors can affect the costs of Google Ads advertising for your business. Learn all about these costs, how bidding works, and the average cost per click for advertisers in our guide to “How Much Does Google Ads Cost?”
Businesses can advertise on Google by opening a Google Ads account. Learn more about how to make the most of Google Ads here. Or follow the proven path to Google Ads success in our “How to Use Google Ads” infographic.
The actual position of your ad is determined by your ad rank (Maximum Bid times Quality Score). The highest ad rank gets the 1st ad position. Your actual CPC will be determined by the ad rank of the next highest ad below you divided by your Quality Score. The only exception of this rule is when you are the only bidder or the lowest bid in the Google Ads auction; then you pay your maximum bid per click! AdWords bidding heavily penalizes advertisers who bid with low quality scores. Conversely, those with high Quality Scores get higher ad ranks and lower CPC.
The auction gets run billions of times each month. The results are such that users find ads that are relevant to what they’re looking for, advertisers connect with potential customers at the lowest possible prices and Google rakes in billions of dollars in revenue.
Once a query is made on Google, the search engine processes the request and runs the auction which will then determine the ad positions and each advertiser’s CPC.
Your Google ads are eligible to be entered into an auction whenever you’re bidding on keywords relevant to the user’s search query. Your bids, Quality Score, and relevance will come into play in determining whether your ad qualifies to display on the SERP.
Once advertisers identity keywords they want to bid on, Google then enters the keyword from your account that it deems most relevant into the auction with the maximum bid you’ve specified as well as the associated ad.
CPC, or cost per click, is the amount an advertiser pays each time someone clicks on their Google Ads ad.
The average cost per click on Google Ads varies by keyword and industry, but is roughly $2.32 on the search network and $0.58 on the display network. Get more average Google Ads metrics here.
This is a metric Google uses to determine how relevant and useful your ad is to the user, based primarily on your ad’s CTR, keyword relevance, and the quality of your landing page. The higher your Quality Score, the better: high Quality Score keywords will save you money and earn you better ad rankings.
Costs are determined by your maximum bid, your Quality Score, and the competitiveness of your keyword.
Google ad rank is the position of the company’s advertisement on the search engine page based on a combination of the company’s maximum bid and quality score.
The ad rank is how high on the page the advertisement will be displayed. Quality Score on the other hand is determined by the relevance and usefulness to the searcher and is only a portion of the advertisement positioning process. As of 2013, Google’s Quality score has become more and more valuable as the average quality score has changed from a 7 to 5.
Ad position is the position on the search engine page results where the advertisement appears in relation to all of the other advertisements.
Actual CPC is the amount an advertiser pays each time a searcher clicks on their advertisement; this number varies depending on the other advertisers in the auction and is always lower than the maximum bidding price.
Actual CPC is determined by dividing the ad rank of the competitor below them (ad rank to hit) by quality score plus $.01.
CPM bidding is based on impressions and can be used alongside CPC bidding.
CPC is the cost for an advertisement based on how many clicks it receives whereas CPM is the cost for an advertisement based on how many impressions it picks up. Both methods can be used simultaneously.
Keywords in Google Ads are the words and phrases that advertisers bid on, in hopes that their advertisements will appear on the search engine results page (SERP) when people are searching for those products or services. For example, if you sell shoes online, you might bid on keywords like “Nike sneakers” and “penny loafers.” Keyword research is the process of using tools and data to determine which keywords are most likely to drive relevant traffic to your ads and your site.
Search engine optimization is the act of improving the visibility of your site or page within a search engine results page through organic methods. This can be done by using search keywords within your content so that a search engine can find and display your site faster and with more accuracy. Site authority and your link profile also play a role in your search engine rankings.
The Google Display Network or GDN is a very large network of sites that allow Google to place display advertisements, which reach over 90% of all Internet users! Advertisers generally find that Display Network clicks are less costly than those on the search network. And depending on your targeting methods, the CTR’s can be high and the CPA’s low. Try our entirely free, easy to use Smart Ads Creator if you’re looking to get up and running on the display network in a hurry.
An ad group is a container for your Google Ads advertisements, keywords, and landing pages. Google tends to reward advertisers who create Google Ads campaigns with tightly structured ad groups. It’s important not to dump all your keywords into the same ad group, but to organize your keywords into themes.
Ad relevance is a measure of how related the keyword you’re bidding on is to your advertisements as well as how much your keywords match the message of your ads and landing pages. Higher ad and keyword relevance can improve your click-through rates and Quality Scores.
Conversion Optimizer in Google Ads is a bid manipulation tool that manages bids at the keyword-level with the goal of trying to drive as many conversions at or below an advertiser-specified cost per conversion (also known as Cost per Action, or CPA).
At WordStream, we’ve analyzed tens of thousands of Google Ads accounts from all over the world, in all sorts of industries. The easiest way to see how you’re doing at Google PPC is to benchmark your PPC performance against similar advertisers in your industry and spend range. Thankfully, WordStream’s got a free tool for that. Click below to give our Google Ads Grader a free run!