Simple AdWords Formula
For their AdWords auctions, Google uses a fairly simple formula to determine who the winning bidder is and how much you will pay when someone clicks on your ad. It is..
(Maximum Bid (times) Quality Score = Ad Rank)
- Maximum Bid is just that…the maximum amount of money you have agreed to pay when someone clicks on your ad. This is set in your AdWords account.
- Quality Score: Your Quality Score is determined by a number of factors.
First, there’s your landing page (the page associated with your Ad Campaign). Not only must it be relevant to the search terms entered, but, if you’re sending people to your site, the page must also provide them with a good experience. And the page must be of high quality (meaning; optimized, properly linked and indexed, so that the search engines easily crawl it.)
Keyword relevance: The keywords you use in your ads must be relevant to the search terms Google’s users have entered.
Click-Through Rate: Your Click-Through Rate or CTR, carries the most weight. Your click-through rate is the percentage of the people who see your ad, who actually clicks on it. So If 100 people see your ad and only 1 of them clicks on it, your CTR would be 1%. The way Google sees it is if your ad has a high CTR that means that people like it. And if people like your ad, then Google wants more users to have the opportunity to see it. Again, it has to do with relevance to the search terms entered and great user experience.
The result of the Maximum Bid multiplied by the Quality Score is the Ad Rank
Your Ad Rank then determines how much you pay per click, cost per click, CPC…and if your ad is eligible for display. The next step is understanding how you can positively affect your Click Through Rate, CTR so that your Quality Score is higher.