How the Google Ads Auction Works

Google Ads is like most PPC platforms— it runs on an auction.

This is something that you’ve likely heard time and time again when learning about Google Ads and considering bidding strategies, potential costs, and optimization options.

But what exactly does it mean? How does it work, and what can advertisers do in order to get more placements, better placements, and more clicks?

Let’s take a look at how the Google Ads auction works and what it means for advertisers.

What is the Google Ads Auction?

The Google Ads Auction is the process in which multiple advertisers “bid” on certain keywords or ad placements against each other.

This is why there’s no single flat-fee for ad placements, even for individual keywords; the market is always changing, and your ad is being evaluated against those of other advertisers and what they’re willing to pay. You may snag a click today on your campaign for $1.50 and pay $1.75 an hour later for a click on the same ad using the same keyword.

And you’re not just bidding against direct competitors; you’re bidding on all other advertisers who are trying to compete for the exact same placements that you are.

When you create an ad, you can enter a bid (including target bids, bid caps, and more, which we’ll talk about in a future Hub chapter). This is one factor that Google looks at when determining which ad will receive what placements. You can also set a budget to cap daily spending.

google ads bidding options settings

There are other factors, however, that play a part, too. They include the quality of your ad and landing page, looking for ads that are a good fit. Ads with higher quality scores receive priority, and ads with higher bids receive priority. The two factors combined are a powerful force to reckon with and can help you dominate the impression share.

Is Bid the Same Thing as Budget?

Some people talk about “bid” and “budget” interchangeably, but the two are very distinct.

Bid will impact your budget, but they’re not the same thing.

Your bid is going to determine how much you’re willing to pay for certain actions. You may set $2.30 as a bid cap, for example. This means that you will never spend more than $2.30 on a single click.

bidding settings in google ads

You can also set “target” costs per action. This means that you want to keep it around $2.30 per action, but as long as it all averages out, you’re okay if some cost more than that limit. This may help you capture some higher quality clicks while still maintaining set acquisition costs that you want to stick to.

Your budget, on the other hand, determines how much you’re willing to spend per day on your campaign overall. It’s a hard limit for Google, and you can adjust it at any time.

google ads budget

Your placements, therefore, are impacted by both bid and budget. If you bid more, you may be able to show up in more or higher-visibility placements.

The higher the bid, though, the faster the budget gets burned up. Higher bids may need higher budgets to be sustainable if you really want to take up a large portion of the impression share.

Ultimately, both can be used to control spending, and the higher each are, the better your chance is to maximize quality placements more often.

What Factors Influence the Google Ads Auction?

There are a few core factors that influence the Google Ads auction, and we’ve already touched on them.

First: Bidding and budget matters. The reality is that all else being equal, if someone is willing to bid more, they’re going to get more placements or better placements. And if you have a larger budget, it means that you can show up in more placements. Maybe your competitors are ranking higher than you but they’re done midday with a $200 a day budget and you can take over the rest with your $600 a day budget.

Those other factors play a substantial role, too, however; Google looks at the quality of the ad and landing page to see how good of a fit different ads are. Ads with higher Quality Scores get preferential treatment and placement priority, and may actually have their ads placed at a lower bid.

For those who aren’t familiar with Goole Ads’ Quality Score, we have a full guide on it, but here’s the gist:

  • Your Quality Score is a metric Google gives you that tells you how relevant your ads are perceived to be by users
  • It takes multiple components into consideration including:
    • Whether your ad copy includes the keyword or seems relevant
    • Current and historical CTR (click-through rate)
    • Quality of the landing page users are sent to from the ad, and whether or not it matches the ad
    • Performance by device type

quality score metrics columns

And for what it’s worth, this may seem like small businesses never stand a chance for ranking if larger businesses with established, strong quality scores and big budgets are going in and snagging all the placements. The good news, however, is that this just isn’t the case.

While those established businesses may be able to show up in a lot of the top placements, there’s still plenty of room to get great placements. You just need the right strategy, bid, and keyword/copy combination. We’ve helped many of our clients do exactly that on multiple different types of keywords so that they can increase their visibility and get quality, relevant clicks that are more likely to convert.

4 Things You Need to Know About the Google Ads Auction

Before you start running Google Ads, there are four things all advertisers and brands should keep in mind when it comes to the Google Ads Auction:

  • It’s almost impossible to get 100% of the impression share; it’s just not something you see often unless you’re looking at an incredibly low-volume, low-competition keyword or your own branded keywords. This means your ad won’t show up every single time. That’s okay. As long as you’re generating results at a profitable cost, that’s a win.
  • You’ll only pay a cent more than what your competitors are willing to pay; you don’t have to pay for your entire bid. This is why you may have set a bid at $2.30 but you still see results much lower. Google isn’t going to nickel and dime you; it’s not a negotiation.
  • Bidding strategies can and do impact what you’re paying for, and how much you’re paying. It’s essential to choose your bidding strategy wisely, because it can impacts what you’re paying for, how much you pay, and ultimately your overall placement quality and relevance. We’ll talk more about this in a bidding resource in a future post.
  • Things change. While plenty of keywords have relatively consistent trends over long stretches of time (sometimes even lasting for multiple years), the reality is that the market can change. This can mean that pricing can fluctuate, your impression share can take a hit, and that you need to regroup. It’s an auction, so it’s fair game; close monitoring is essential to make sure that you’re staying competitive and relevant to compete.

Final Thoughts

The Google Ads Auction is dynamic, and it’s always changing as the market changes— and the market never stops evolving. New keywords gain and fall out of popularity, new competitors hit the market, new offers emerge, competitor behavior shifts, and consumer behavior can all shift at any time. This can impact the auction very quickly.

Because the Auction is so dynamic, it’s important to keep a close eye on what’s happening with your ad campaigns regularly. Setting up rules to help you track any sudden changes in your campaign is a good call to make, but nothing beats manual review and management.

And remember that Google Ads is a trial-and-error process. It may take some time to find the right bid, budget, and ad combination that will help you get quality leads or clicks at the price you want. A/B testing is imperative, so you’ll want to allocate part of your overall ad spend to testing on an ongoing basis.

Not sure where to start with the Google Ads Auction? Learn more about how we can help you here. Find out how we use data-focused Google Ads services to maximize your campaigns.