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Google Ad Ranking Explained: How it works and all you need to know

3 Mins read

Google ad has proven to be so effective that is why we all want to launch an ad campaign to fulfill our marketing goals either to increase sales or boost brand awareness, however, It will be worthwhile you know that most of the time you are not the only one bidding for the advertising space related to your keywords, it is important you know this before you launch your first ad campaign.

In a bid to be fair to all parties Bidding for a particular Keyword space Google developed an ad ranking algorithm to rank ads-related keywords according to their score. This is similar to the algorithm used for organic SERP. Google makes use of the three following factors to rank ads;

  1. Quality score: One of the two factors Google uses in ranking ads is the Quality score metrics. Google uses the following metrics to mark ad quality scores;
  • The expected click-through rate of the ads
  • Landing page experience – the ad destination
  • Relevance of the ad to the target audience
  • Use of Google advertising extensions
  1. Bid: how maximum you are willing to pay per click when someone clicks on your ad
  2. The expected impact from your ad extensions: When you create your ad, you have the option to add additional information to your ad, such as a phone number, or more links to specific pages on your site. These are called ad extensions. Google Ads estimates how extensions and other ad formats you use will impact your ad’s performance. So even if your competition has higher bids than yours, you can still win a higher position at a lower price by using highly relevant keywords, ads, and extensions.
    Together, these 3 factors determine when and if your ad will appear to potential customers.

Read also: Google ads structure: how to set it up effectively

Google auction format calculation

Bid × Quality score = Ad rank

BiddersCPC Bid Quality ScoreAd rank scoreRank
Transfer wise$53154th
Revolut$55252nd runner up
Peelar$39271st winner
Google auction format calculation.

Peelar wins the auction bid despite bidding $3 for the ad space.

The bidders are all multi-currency online banks offering virtual bank accounts in different currencies to ease sending and receiving of funds across borders.

I am sure you are aware they (bidders) all bid for the same keywords (Send money overseas, online transfer beyond borders, cheap transfer to countries beyond borders, best borderless transfer, virtual account, etc.) so when any of their targeted audience use Google search network with search query (any of the keywords) then peelar ads will be the first on the list, followed by Revolut, then grey and finally transfer wise.

CPC (cost per click) is the amount you will pay per click on your ads.

Thanks to Google innovation Advertisers only pay if a searcher clicks on their ad (hence the term pay-per-click/PPC). But this is not fixed, Due to the auction bid, the bidders don’t get to pay the amount they set at the CPC bid, the price they pay per click is much lower than that.

The cost per click is calculated using the following formulae

Your cost per click = Ad rank of advertiser below you / Your QS + $0.01

In the example above, Peelar is in the #1 position. its Quality Score is 9 and its Ad Rank is 27. Revolut’s ad, directly below, has an Ad Rank of 24. So, Peelar’s actual cost per click is 25/9 + 0.01= $2.8.

Notice how this compares to Grey. Grey’s Quality Score is 4, Ad Rank 16, and cost per click is $3.85. They appear two spots below Peelar even though they pay more per click and had a higher maximum bid.

Quality Score9542
Ad rank27251615
Cost per Click $2.8$3.3$3.85
Google cost per click

As we can see Google rewards higher-quality ads with lower costs per click.

And that is why the ROI for Google Ads can be so high: Searchers only see ads relevant to their search (and that they’re most likely to click on) and advertisers pay the lowest possible price for each query. It’s a win-win!

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