How Does The Auction Work?

An Introduction to PPC Bidding

Search engines make their money through PPC or pay per click. A bidding for words entered into search engine advertising model. Every time a search is done online an ad auction happens to determine which ads you see. In the old model the top place of a web page search went to the highest bidder, second place to the next highest bidder and so on. With the top spot going to the highest bidder, often an irrelevant advert with low interest from the public could be placed in top spot, bad for the users, bad for the search engine, bad for advertisers. Along came Google with their winning formula that made them the powerhouse of online advertising that they are. Google’s PPC model; Google Adwords changed everything by allowing more relevant ads to be placed higher on the web search page. Google’s algorithms for calculating the PPC value works because it aligns the needs of advertisers, users, and the search engine.

How PPC bidding worked in the past.
The method Google uses to calculate a justification of your ad’s position or Ad Rank used to be a simple formula; if you bid high enough and your ad got many clicks your Ad Rank went up. By doing this Google rewarded the advertisers who had better, more relevant ads that were being clicked on more often by users. The Google PPC formula has changed a little but it is still comprised mostly of how many clicks you get on your page.

How PPC works now.
However, Google have included other relevant factors that change how the bidding process takes place, they have added something called quality score. Quality score is the score you receive after your ad is judged by Google. If your ad manages to achieve Google’s minimum quality score to be included in an auction, then you pay minimum price for that auction and could be placed higher and pay less than your competition.

How to calculate your Ad Rank.
To calculate your pages Ad Rank Google takes your maximum bid placed multiplied by your quality score. Every time a search is preformed the auction for the term searched starts and all the bidders get placed in order of their Ad Rank top to bottom. So if you have bided higher than your competition and you have a better quality score you will have your page placed it top position. Alternatively, you could be bidding low and have a higher quality score than the other bidders putting you higher up in the ranking, effectively paying less for a better placement.

What is the actual cost?
It is important to note that what you actually pay is not what you are willing to pay at maximum. You only need to pay what you need to stay in your ranking and only if your page is clicked on. To calculate what you actually pay for each click on your page you take your Ad Rank and divide it by the quality score of the position lower than you.

Ad relevancy is the name of the game.
Ad relevancy is the most important determining factor on paid search engines like Google’s. Higher keyword relevance can improve your quality score. Understanding how the auction works can help you place higher in the results.

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