All the business owner, entrepreneurs and marketers want to promote their business through Google AdWords, while managing their PPC accounts they probably fail to understand how Google AdWords works.
Here I am writing this article to help people understand how Google AdWords work so that they can manage their PPC accounts by themselves.
Google Adwords works on the quality score. Quality score is generally calculated on how well an ad group, keywords, ad text, landing page and click through ratio (CTR).
Every time someone searches on Google, an auction is created. Every ADs created by advertisers matches the keyword in a search query competes in the auction. It’s the AD Rank that will decide the priority of the advertiser.
Ad Rank = Quality Score * Bid
Ads are sorted in an order based on Ad Rank. AD that has the highest rank gets the first spot and so on.
Advertiser actually pays the lowest amount required to beat the Ad Rank of the competitor below them.
Here is a formula to make you understand
$$ = Ad Rank to beat / Quality Score + $0.01.
Let’s try to understand with an example so that I can show you how important is the Quality Score(QS)
Let say a keyword
hotels in California has QS = 8
We want a 1st position on the matter at what cost we need to pay, so we are ready to pay $100/click.
Ad Rank = 800 (QS 8 * $100 Bid)
If our competitor has to beat us he would need an ad rank > 800.
Let’s assume, our competitor has QS10 on the same keyword, so to beat us he will need to pay #80.01/click to get the top spot.
Basically, they will pay $19.99 less than us.
Assuming they have a more realistic bid of $10/click, the amount we would pay in the auction is calculated as follows.
Ad Rank to beat = 100 = (QS 10 * $10 Bid)
$12.51 = 100 / 8 + $0.01 = (100 Ad Rank to beat / our QS 8 + $0.01)
So even though we bid $100, we only pay $12.51.
If our Quality Score on that keyword in that auction was 10, then the amount we would pay is:
$10.00 = 100 / 10 + $0.01 = (100 Ad Rank to beat / our QS 10 + $0.01)
Here it get’s really interesting, a person in the first position actually pays LESS than the people in the second position.
Assume that some crazy guy bids $100 for first place and has QS 10, but next competitor has QS 5 and bids $10, the position 3 guy has QS 7 and bids $7 and a person on the 4th position has QS 5 and bids $9.
Ad Rank to beat = 50 = (QS 5 * $10 Bid)
$6.26 = 50 / 8 + $0.01 (50 Ad Rank to beat / our QS 8 + $0.01)
Ad Rank to beat = 49 = (QS 7 * $7 Bid)
$9.81 = 49 / 5 + $0.01 (49 Ad Rank to beat / #2 QS 5 + $0.01)
Ad Rank to beat = 45 = (QS 5 * $9 Bid)
$6.44 = 45 / 7 + $0.01 (45 Ad Rank to beat / #3 QS 7 + $0.01)
From the above result, you can see that person on 1st position pays less than the 2nd and so on.
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