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How Google Ads Auction Works – Explained Simply

  • Writer: Eswar Ravi
    Eswar Ravi
  • Mar 1
  • 3 min read

Updated: Mar 10

Think of Google Ads bidding like an auction, just like how people bid for rare sneakers or Pokémon cards on eBay. But instead of People, here businesses bit for their targeted keyword to spot on Google’s search results or YouTube ads.



Google Ads auction illustration showing three brands (A, B, and C) bidding for the keyword 'Best Running Shoes.' Each brand has different Max CPC (cost per click), Quality Score, and Ad Rank (Bid × Quality Score). Brand A has a Max CPC of $3.00, Quality Score of 6, and Ad Rank of 18. Brand B has a Max CPC of $2.00, Quality Score of 8, and Ad Rank of 16. Brand C has a Max CPC of $2.50, Quality Score of 9, and Ad Rank of 22.5. The ad position ranking in search results is Brand C at #1, Brand A at #2, and Brand B at #3, demonstrating that Ad Rank determines placement rather than just the highest bid.


 

How Google Ad auction Works

Step 1: Google Holds an Auction Every Time Someone Searches

  • When someone types a search like “best Running Shoes”, Google checks all the businesses that want to show ads for that keyword.

  • These businesses have set a bid (how much they’re willing to pay if someone clicks their ad).

  • Google then picks the best ads to show.


Step 2: Google Chooses Winners Based on 3 Things

  1. Your Bid – How much you’re willing to pay per click or conversion.

  2. Your Ad Quality (Quality Score) – Is your ad useful? Does it match the search? Is your landing page good?

  3. Expected Impact of Ad Extensions – Do you have extra info like phone numbers or links?

Example:

Imagine you and your friend want to put up posters in your school hallway, Anyway your school Charge Money for that

  • You offer ₹10, but your poster is ugly and has no details.

  • Your friend offers ₹8, but their poster is colorful, has helpful info, and a cool design. The school will probably pick your friend’s poster because it’s more useful!


    That’s how Google picks ads too and this How Google Ads Auction Works!


Step 3: The Auction Happens in Milliseconds

  • Google decides the ranking and how much you actually pay (it’s often less than your max bid).

  • Your ad is placed based on Ad Rank, which is calculated as:


    Bid × Quality Score × Ad Extensions Impact


What is Google Ad Rank?

Google Ad Rank determines the position of your ad in the search results. It’s calculated using:


  1. Your Bid:

    The amount you’re willing to pay per click.

  2. Ad Quality (Quality Score):

    Based on ad relevance, expected CTR (click-through rate), and landing page experience.

  3. Ad Extensions & Formats:

    Additional info like call buttons, site links, and location details can improve rank.


Types of Google Ads Bidding Strategies

There are two main types: Manual Bidding and Smart Bidding.

  1. Manual Bidding (You Set the Bid)

    Best for: If you want full control over spending.

    Manual CPC (Cost-Per-Click) – You decide how much you pay per click.

    Example: You set ₹10 per click, so you never pay more than ₹10.


  2. Smart Bidding (Google Sets the Bid Using AI)

    Best for: If you want Google’s AI to optimize for better results.

    Maximize Clicks – Google tries to get as many clicks as possible within your budget.

    Maximize Conversions – Google focuses on getting leads, sales, or sign-ups.

    Target CPA (Cost Per Action) – Google aims to get conversions at your chosen cost. Target ROAS (Return on Ad Spend) – Google optimizes for revenue, trying to maximize profits.

    Enhanced CPC – Google slightly adjusts your manual bid to increase conversions.


    Example:If you set a Target CPA of ₹100, Google tries to get conversions at ₹100 or lower.


Which Bidding Strategy Should You Use?


Your Goal

Best Bidding Strategy

Get more website visitors

Maximize Clicks

Get more sales/leads

Maximize Conversions or Target CPA

Get a good return on investment

Target ROAS

Full control over cost per click

Manual CPC

Improve conversions slightly with control

Enhanced CPC


 
 
 

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