Introduction to Google AdWords Auction

BPOVIA takes AdWords bids very seriously and aims at implementing AdWords strategies in the most cost-effective way, in order to achieve this goal, we firstly need to know how Google AdWords auction works, here we would like to share our ideas and knowledge about AdWords auction with the world, hopefully this information to help you, if you have any thoughts on this, please feel free to leave your comments.

According to Google, every time a user enters a search query, an auction is run, the result of the auction is an ads list in certain order.

First of all, let’s take a look at an example:

This is a very simple model in which 4 advertisers are included, let name them as Red, Green, Blue and Yellow, their max bid goes down from $4 to $1 sequentially. Assume that a user’s search query in Google could trigger their ads to appear, however, the actual price they pay will not be their max bids, as you see, the advertiser only need to pay the max bid of the next advertiser.

However, in real AdWrods mechanism, any ad’s position is not simply determined by how much you bid, here we need to introduce another very important factor Quality Score, Quality Score is a number between 1 and 10 which is used by Google to determine your ad position. We already know that Quality Score is decided by 3 factors, they are CTR, Relevance and Landing Page Quality, according to the pie graph above, you may notice that Google regards CTR as the most important, then Relevance, then Landing Page Quality.

Now let’s add Quality Score to our previous simple example and make it a little more like real campaign. When the Max Bid times the Quality Score, we achieve another important number, say Ad Rank, the more Ad Rank you an advertiser gets, the higher his or her ad can rank. In this case, Blue with Max Bid $2 and Quality Score 6 receives the highest Ad Rank 12, then Green’s 9 and Yellow’s 8, as for Red, although he has the maximum bid in this case, due to his low performance in Quality Score (1), his ad fails to appear.

Then how much does Google charge each advertiser when uses click on his or her ad, see the chart below:

• P1 = The actual CPC Advertiser 1 will be charged by Google
• Q1 = The Quality Score of Advertiser 1′s ad
• B2 = The maximum bid of Advertiser 2
• Q2 = The Quality Score of Advertiser 2′s ad

Now we have to introduce an equation from Google,

• P1Q1=B2Q2

So then

• P1=B2Q2/Q1

Say the actual CPC of an advertiser is the amount that his/her next-rank advertiser’s Ad Rank divided by his/her Quality Score. In our case, we know that finally Blue will be charged $1.5 and Green $2.67, you may notice that high rank doesn’t mean high price, Google uses this system to award advertisers who have a higher quality score.

Based on this, we can figure out a more efficient PPC campaign, we will talk about this in our next post.

Tagged as: AdWords, BPOVIA, Online Marketing, PPC, SEM