Google AdWords: Quality vs Big Wallet
Ever wondered how Google AdWords works out which position your ads will get and how much CPC you pay for that position? Is it the one with the biggest wallet that comes first?
In some circumstances you can pay less than the competitors for a keyword and still have your ad rank higher in paid search. See this happens below.
The Google motto of delivering the best user experience through search relevance is reflected in this model of AdWords Ad positioning.
1. Creation of the campaign and AdGroup
The AdWords user defines the ad text (creative), the keywords that will trigger the display of that ad and the landing page that people clicking it would go to. All these elements will ultimately determine the ranking and actual cost of the ad and will be explained later.
2. Budget
The user sets the daily budget to abide by and the maximum CPC (cost per click) they are willing to pay for this each time the creative is clicked on. The maximum CPC is the first numeric component of calculating the ranking of an ad.
Note: maximum CPC can be set at an AdGroup level (the collective group of keywords specified in the AdGroup) or can be individually set for each keyword.
3. Quality, Quality, Quality
Google assesses your nominated landing page and the selected keywords to assign a quality score represented as being either: Great, Ok or Poor. The quality score itself is actually a numeric figure (not divulged by Google) and is used as a measure of keyword relevancy i.e. the scores are indicative of how Google feels your landing page relates to that keyword.
The creative also plays an important factor of quality and relevance, if the creative describes something that does not exist within the contents of the landing page the user experience is dimished which is a nono in Google's books.
Example:
A user creating an ad describing a promotion, uses a competitor's brand name as the keyword and points it to a landing page that does not signify any promotion relating to that brand.
4. Hey presto! the ad ranking is determined
Ranking is calculated by multiplying the quality score by the maximum CPC.
Ranking = Quality Score x Keyword Max CPC
Example:
Ad "A" has a quality score of 2 and max CPC of $1.00, Ad "B" has a quality score of 0.8 and max CPC of $2.00 and Ad "C" has a quality score of 1 and max CPC of $1.50
Ad A ranking score = 2 x 1 = 2 (1st place)
Ad B ranking score = 0.8 x 2 = 1.6 (2nd place)
Ad C ranking score = 1 x 1.5 = 1.5 (3rd place)
Ad "A" would be first followed by "B" and then "C"
Lesson #1 - C big wallet does not mean guaranteed high ranking
Lesson #2 - C importance of relevance
5. How much did it cost?
Now that the rankings are worked out, the individual costs for that ranking can be calculated.
Costs are calculated by: The ranking score of the position below divided by the quality score of your ad plus one cent. The last position will pay the minimum bid amount.
Actual Cost = (Ranking Score of position below / Quality Score of your ad) + 1 cent
Following on from the previous example:
Cost of ad "A" = (1.6 / 2) + 0.01 = $0.81
Cost of ad "B" = (1.5 / 0.8) + 0.01 = $1.89
Cost of ad "C" = minimum bid for that keyword
Note: the minimum bid amount is determined at a keyword level and calculated according to keyword relevance to your nominated landing page and the market competition of that keyword.
