Google Adwords is an auction based Pay Per Click (PPC) advertising system in which an advertiser PPC set the maximum amount you are willing to pay for each click your ad placed on Google.

AdWords advertisers to compete in an auction in real time whenever a keyword that triggers your ad. Adwords is a "Vickery" type of auction. In a Vickery auction once a winner is decided, the actual price paid is the maximum amount bid, is a penny more than the second highest bidder's offer. Google AdWords adds a twist to this, as winning bidders are also determined not by the ranking of the notice by the maximum bid.

Understanding the way Google Adwords ranks PPC bidders to determine who has won each of the auctions in real time is essential to establish a coherent and profitable to take part in Google's AdWords PPC program.

The quality of Google Adwords

The Google Adwords system to determine who wins the PPC auction is based on the belief that high quality creative ads benefit all parties involved. When Google displays ads that match the requirements for seekers of the claim is that benefits advertisers, researchers, publishers and Google alike. That the name of this "relevance."

Since the contractor has the highest position and the highest position gets more clicks, the goal for you as an advertiser on Google is to get the higher position for your ad creative at the lowest possible cost per click (CPC).

Every time a search is asked and the auction took place, Google ranks the ads triggered by the ranking. The position of each ad is based on their 'ranking'

Ad Rank = 'Maximum Cost Per Click' x 'Quality Score'

Since the ranking is not only the maximum amount that an advertiser has bid the highest bidder does not always win. The winning bid is based on an additional set of elements that together make up the Google Quality Score.

The level of quality is the foundation on which Google evaluates and measures how relevant your ad to users and has an important effect on the decision of how much you actually pay per click. This means that to compete effectively an AdWords advertiser should be aware of what they have to do to achieve maximum quality score of Google.

Exactly how Google calculates the level of quality is unknown to us and is a closely guarded secret.

Google tells us, however, that the quality level is determined by a clickthrough rate (CTR), relevance of ad text, historical performance of that keyword and other important factors such as landing page destination URL .


The Google Quality Score and cost per click (CPC)

Typically, the highest level of quality of an ad, the more relevant it is for keywords that are linked to a. When the ads are very relevant to users tend to earn more clicks and consequently achieve a higher clickthrough rate (CTR). This tells Google that users are finding the appropriate ad and click on it to get more information. A higher CTR will increase the quality level of a key word in turn increase your ranking. As a PPC advertiser this means that you can maintain or increase their position while reducing the actual cost per click you pay.

Furthermore Google stops displaying ads keywords that have a low Quality Score. If an ad has a level of quality under a specific keyword which means that users are finding the ads to match your needs and Google will disable the keyword and it is inactive.


A practical example of how the quality of Google Works

The auction system that Google Adwords PPC works is complicated because you can never be sure of the quality of competitive offerings.

Making assumptions about the quality of Google, here's an example of how the Google Adwords system will decide who wins a PPC auction and they would be willing to pay per click.

I used three PPC bidders to show how it works, but in reality they are not vendors many, many more participating in each auction of CSF.

The row titled "actual CPC" below shows the amount of each bidder would pay for your Adwords click next auction in particular.

Silly
Quality Score = 3
Max CPC = £ 0.55
Ad Rank = 1.7
Actual CPC = £ 0.34

Big Ears
Quality Score = 1
Max CPC = £ 1.00
Ad Rank = 1.0
Actual CPC = £ 0.84

PC PLOD
Quality Score = 1
Max CPC = £ 0.80
Ad Rank = 0.8
Actual CPC = £ 0.41



To calculate how much each bidder pays, Google first calculates the ranking of each bidder PPC ads. Ad Rank is Google's Quality Score multiplied by the maximum CPC. Above we have taken ads for their ranking and we can see that Noddy has won this auction PPC and your ad is in the first position in search results.

Noddy was willing to pay Google to a maximum of £ 0.55 per click, but he only has to pay 1p more than would be necessary to maintain its ranking above the next highest ranked bidder - £ 0.34. The calculation is:

"Actual CPC =
('Ranking of the announcement of the next highest bidder' / 'quality of Winning Bid') + 1p

Which in our case is:

("Ad Rank Big Ears' / 'quality of Noddy') + 1p

= £ 0.34p

The same logic applies to each bidder on the list, big ears and PLOD PC.

In the example above you can see that because Google is rewarding Noddy because your ad is relevant, is paying much less per click than your competitors big ears and PLOD PC.

Using this formula, if all other factors remained constant, large ears would have to pay a massive £ 1.66 per click if you wanted to move to a position above Noddy.

As you can see in this example any PPC advertiser who does not understand the theory of quality runs the risk of paying a high price for their ignorance.