When it comes to Google Ads advertising, it is no surprise that many business owners either struggle with, or are simply unaware of, how Google's bid auction works when it comes to determining how much an advertiser will pay for a click. Let's face it, if you're busy running your own business, why would you know? It's certainly not something that's going to leap out at you if you've just set up a Google Ads account for the first time.
Some people believe that Google Ads rankings, i.e. the position of your ad, is simply a case of whoever is bidding the most, will secure the top spot. Of course, bid amount is a factor but it's not the only consideration. Google have a concept of ‘Ad Rank' where a score is allocated to each advertiser in any given auction; in simple terms, whenever a search is conducted that results in adverts being displayed.
Google Ads Bid Auction Video
Watch this video from Google's Chief Economist, Hal Varian, to help understand the Google Ads bid auction (referred to as AdWords in the video – the name for the service at the time the video was made):
A common mistake we see with new Google Ads users is that too many keywords are put into a single ad group, with a single advert, pointing to a generic landing page. Not always, but usually, this will result in a lower Quality Score that will have a negative impact on your Ad Rank. This then affects your position and, ultimately, how much you pay for clicks.
A bit of time invested in optimising your Google Ads account can pay dividends by improving your conversion rates, boosting your Ad Rank and lowering your average cost per click.