How does the Google Ads auction work?

The Google Ads auction is a complex process that determines which ads appear on Google search results and other Google properties, as well as the position of those ads. Here's a detailed explanation of how the Google Ads auction works:

### 1. Advertiser Bids:

- **Bid Amount**: Advertisers participating in Google Ads set a maximum bid amount they are willing to pay for a click on their ad (Cost-per-Click, CPC) or for 1,000 impressions of their ad (Cost-per-Thousand Impressions, CPM).

- **Bid Strategy**: Advertisers can choose from various bid strategies, such as manual CPC (where you set bids manually) or automated bidding strategies (where Google adjusts bids automatically based on goals like clicks or conversions).

### 2. Quality Score:

- **Relevance and Quality**: Google uses Quality Score to measure how relevant and useful your ad is to the user, based on factors like expected click-through rate (CTR), ad relevance, and landing page experience.

- **Impact on Ad Rank**: Quality Score influences your Ad Rank—a metric that determines your ad's position on the search results page and the actual cost-per-click you pay. Higher Quality Scores typically lead to higher ad positions and lower CPCs.

### 3. Ad Rank Calculation:

- **Ad Rank Formula**: Ad Rank is calculated using the formula:
  \[
  \text{Ad Rank} = \text{Bid Amount} \times \text{Quality Score}
  \]
  - If you're using CPC bidding: Ad Rank is influenced by your maximum CPC bid and Quality Score.
  - If you're using CPM bidding: Ad Rank is influenced by your maximum CPM bid and Quality Score.

### 4. Auction Process:

- **User Search**: When a user enters a search query on Google, an auction is triggered if there are advertisers bidding on keywords relevant to that query.

- **Determining Eligible Ads**: Google determines which ads are eligible to appear based on criteria like ad relevance, Quality Score, bid amount, and ad extensions.

- **Ad Positioning**: Ads are ranked based on their Ad Rank. The highest Ad Rank ad typically appears in the top position, followed by subsequent ads in descending order of Ad Rank.

### 5. Ad Auction Dynamics:

- **Real-Time Auction**: The auction happens in real-time for each search query, considering the bids and Quality Scores of participating advertisers.

- **Ad Formats and Extensions**: Ad formats (text ads, image ads, video ads) and ad extensions (like sitelink extensions, callout extensions) also play a role in ad visibility and click-through rates.

### 6. Auction Outcomes:

- **Winning Ads**: The ad with the highest Ad Rank wins the auction and gets displayed in the top ad positions on the search results page or relevant placements on the Google Display Network.

- **Cost Calculation**: The actual cost-per-click an advertiser pays is influenced not only by their bid, but also by the Ad Rank of the next highest ad and the Quality Score of their own ad.

### Example:

If an advertiser bids $2.00 for the keyword "buy shoes online" with a Quality Score of 8, and another advertiser bids $1.50 with a Quality Score of 10, the ad with the lower bid but higher Quality Score might win the auction and potentially pay less per click than the higher bidder.

### Conclusion:

Understanding the Google Ads auction process is essential for advertisers to optimize their campaigns effectively. By focusing on improving Quality Score, crafting relevant ad copy, and strategically adjusting bids, advertisers can enhance their ad performance and achieve better results within their advertising budget.