How Does Google Adwords Work?

As a Campaign Manager at Webfirm I have been asked this question a lot “What is the difference between the Organic result listings and the Sponsored listings?”  So, I wanted to take this chance to do my best to briefly explain how the Ads work and try and take some of the scary unknown out of the equation.

So what happens when you type in a search query into Google?

Every time you go to search for something an auction is run, and the advertisers compete to gain your click. Each ad will have a set of associated keywords against it and every keyword or phrase has an associated average value or a “Cost Per Click.

For example the keyword “Plumber Perth” may be worth $2 and the keyword “Plumbing service in Perth” may be worth $1.

Each Advertiser has set how much they are willing to pay to win the click for that particular keyword or keyword group, known as the “Maximum Cost Per Click Bid”. But fear not, it’s not a case of whoever has the most money wins the top spot, as Google gives each advertiser a “Quality Score”.

Many factors contribute to a Quality Score such as; relevant content on the site, sites loading time, how many times people have clicked that Ad previously and much more. The Quality Score is measured out of 10 – with 10 being the best and 1 being the worst.

Now that each advertiser has a “Maximum Cost Per Click” (Max CPC) and a “Quality Score” (Q.S) we can use this to determine where they will be placed on the results page or their “Adrank”. This is done by multiplying the Advertisers “Max CPC” by their “Q.S”.

For example

  1. Firmweb Plumbing has a Max CPC of $4 for the keyword Plumbers Perth, and a Q.S of 6. So their Adrank score will be $4 x 6 = 24

  2. Webfirm Plumbing has a Max CPC of $3 and a quality score of 9 so thier Adrank is $3 x 9 = 27.

  3. With Webfirm’s higher score they will be ranked above Firmweb in the sponsored search results even though they had a lower Max CPC.

  4. Now for the last bit of technical magic, if Webfirm was to “win” the searchers click they do not have to pay their Max CPC bid. To work out how much they will pay we look at the advertisers Adrank in the next position below them, in this case Firmweb – 24 and we divide that by Webfirm’s Q.S (9). So Competitors Adrank/Your Quality Score = 24/9 = $2.6.

  5. Webfirm has won the click for $2.60 and each other advertiser competing in the auction who didn’t win the click pays nothing.

I hope this article helps take out some of the unknown, for a great infographic (and who doesn’t love an infographic) see here: http://searchengineland.com/infographic-how-do-google-adwords-work-100963. For further information don’t hesitate to contact us at Webfirm – call us on 1300 932 347 or email us at info@webfirm.com.

 

Image credit theanthonyryan on Flickr

Webfirm

About Webfirm

Webfirmian is our byline for any article written by a non-current Webfirm employee.

2 Comments

Leave a Reply