How much a bidder actually pay in Google AdWords?
In our previous blogs, we have learned what is Google AdWords, how does it work and what is a bidding process. Now let’s understand how much AdWords charges a bidder.
We already know that how well each advertiser competes is based on their Ad Rank. Ads are then listed in descending order based on the result of the equation.
Ad Rank = Quality Score * Bid
Now, understanding how Ad Rank is influenced, will make more sense when we learn basics.
What is Quality Score?
Quality Score is a variable used by Google, that can influence both the rank and cost per click (CPC) of ads. To determine the order in which ads are listed, each ad has the following formula run against it: bid * Quality Score.
Why Quality Score?
The purpose of introducing Quality Score is to improve the experience of users who click on paid advertising links. It is reasonable to assume that users who have a great experience when clicking on ads will click on them more frequently, thus increasing advertising revenues for the search engine.
Factors affecting Quality Score
- Your click-through rate (CTR).
- The relevance of each keyword to its ad group.
- Landing page quality and relevance.
- The relevance of your ad text.
- Your historical AdWords account performance.
The exact weight of Quality Score versus bid has not been revealed by any of the major search engines, and each company has stated that they reserve the right to continually adjust their ranking methodologies.
Understand how much winners pay?
In a way, understanding this process is the key to really unlocking AdWords.
Let’s understand it with practical examples:
Suppose, Company A has a website named meetironman.com and has a QS = 8. Now, A, participated in a bid for a phrase say, “get iron man caricature”.
Let’s say company A want to show up in the 1st position on the page no matter what. We can’t guarantee this, but we can certainly be pretty certain by over bidding the keyword to say $100/click with:
Ad Rank of A = 800 = (QS 8 * $100 Bid)
To beat A, a competitor (Company B) would have to get an ad rank > 800. This means even if they had a QS10 keyword, they would have to bid $80.01/click to get the top spot. Assuming they have a more realistic bid (generally $100 bid is high enough) of $10/click
Ad Rank of B = 100 = (QS 10 * $10 Bid)
And the amount A would pay in the auction is calculated as follows:
(100 Ad Rank to beat / our QS 8 + $0.01) = 100 / 8 + $0.01 = $12.51
So even though A bid $100, A only pay $12.51.
If Quality Score of A on that keyword in that auction was 10, then the amount A would pay is:
(100 Ad Rank to beat / our QS 10 + $0.01) = 100 / 10 + $0.01 =$10.00
Here’s where it really gets interesting; the person in the top spot could actually pay LESS than the people in the spots below them.
Unexpected, right? Here’s why that happens.
Assume the same crazy $100 bid for the top spot, but now let’s say the next competitor (Company C) only has a Quality Score 5 keyword on a $10 bid, the position 3 (Company D) has a QS 7 keyword on a $7 bid and the position 4 (Company E) has a QS 5 keyword on a $9 bid.
Ad Rank to beat C = 50 = (QS 5 * $10 Bid)
Position 1 pays= (50 Ad Rank to beat / (QS of A) 8 + $0.01) = 50 / 8 + $0.01 = $6.26
Ad Rank to beat D = 49 = (QS 7 * $7 Bid)
Position 2 pays= (49 Ad Rank to beat / (QS of C) 5 + $0.01) = 49 / 5 + $0.01 = $9.81
Ad Rank to beat E = 45 = (QS 5 * $9 Bid)
Position 3 pays= (45 Ad Rank to beat / (QS of D) 7 + $0.01) = 45 / 7 + $0.01 = $6.44
In this example, our QS 8 keyword in position 1 actually pays less than positions 2 and position 3. This same calculation holds true no matter what position you show up in, so the person in position 3 could pay less than position 4 and so on.
If you have a Quality Score 10 keyword, you control the auction.
With a Quality Score 10 keyword, you know that not only are you paying the least amount possible for the position you are getting, you are forcing EVERYONE above you to pay the MOST!