How does Google determine AdRank and Cost in Google Ads?

How does Google determine Ad Positions in Google Ads?

How does Google Ads (formerly Google AdWords) determine on which position your ad is shown on the search results page, and how much you have to pay for a click on your ad?

Most people think the more money they throw at Google the better the ad position will be, but that's not true. The actual process is based on what is called a 'second price sealed bid auction'. I can see you cringe, but don't fret - here's how it works.

To simplify it I will only look at two competing ads, but the same calculations will be applied even if there are dozens of ads competing.

AdRank and Quality Score

The position of the ad is determined by the maximum amount an advertiser is willing to pay for a click (maximum cost-per-click or mCPC) and how relevant the advertisement is for a particular search query (Quality Score or QS). The QS is simply a metric that looks at how well related your bidded keyword, your ad text and your landing page are to the original search query. For example, let's say someone searches Google for the term 'blue suede shoes'. If you are bidding on the term 'blue suede shoes, your ad contains the same phrase, and on click you send people to a landing page on your website that is all about blue suede shoes. In this case you have a high relevance to the original search query and will get a high QS. If someone searches for 'blue leather boots' you would have a lower relevance, and hence a lower QS. The Quality Score is an actual number between 1 and 10, with 10 being the highest possible score.

Google then simply multiplies your mCPC with your QS to determine you AdRank Score.

Example: you are willing to pay up to RM2.50 for a click, and your QS is 6. Your AdRank Score will be 2.50 x 6 = 15.

Your competitor is willing to pay more for a click, their mCPC is RM4, but their QS is only 3: 4 x 3 = AdRank Score 12, lower than yours.

The ad with the highest AdRank Score will win the ad auction and will get the top spot, not the one who is willing to pay the most. In the above example you will get top spot, although you are not willing to pay as high an amount as your competitor. Also take a closer look at the image above, it is not necessarily the highest bidder who will get the best ad positions.

How much do you have to pay for a click?

The amount you have to pay for the top spot is indirectly based on how much your second place competitor is paying for second place spot.

Google looks at the AdRank Score of the advertiser below you (in the above example: 12) and divides that by your own Quality Score (6): 12 / 6 = 2. Google then takes this number and adds 1 cent to it: 2 plus RM0.01 = RM2.01 - this is the actual amount you will have to pay for a click, which is lower than the mCPC of RM2.50 you are willing to pay.

What you can learn from this: while you can pay your way to the top of the ad positions it is not a profitable way to do so. Instead you should focus on getting a better Quality Score and thus a better AdRank. This will improve your ad position at a lower cost per click. If you would like to learn how to do this please check out our Google Ads Certification Course, there we teach the best practices on how to do this efficiently.