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How Does Bidding Work in Google Ads?

For some, it may even come as a surprise that there is Bidding in Google Ads. Read on for the full explanation on how this process works in the platform. 

FACT: When you are using Google Ads, you need to bid. 

You can think of it like an Auction. In fact, that’s actually what Google calls it! How did this happen and why?

Here’s the situation:

-There is a limited amount of advertising space. 

-On search results, there’s usually four ads at the top of the page

-On website that shows display banner ads, there’s usually just one spot for a particular ad to go to.

With a limited amount of advertising space available, Google devised a way to decide which ad should show among advertisers interested in the space. Thus, your ad enters into an auction. So, if every ad that is bidding is equally RELEVANT, the person with the highest bid is going to be the ad at the top of the page. The person with the next highest bid is the second ad on the page, and so on. 

If it’s an auction, Google is basically auctioning off the top spot on the page. Whoever is willing to pay the most gets to put their ad there.

 That’s the case if the ads are equal.

But not everything is always equal in this platform. 

It’s very important for Google to show relevant results to their users. That’s why people go to Google. People know that when they search for something, they’re going to see the results that answer the question that they were searching for. So if you are advertising and targeting a certain keyword that is very relevant to what you are selling, Google likes that.

On the other hand, if you are trying to target a certain keyword that has some relation to what you’re selling but it’s not a really good fit, (e.g. you’re trying to target something that maybe you shouldn’t be targeting). In that case, Google doesn’t really like that irrelevant ad. Because if people kept seeing results that were not what they’re searching for, people would stop going to Google to search for things.

So, on the one hand, we have a highly-relevant ad, and on the other hand, we have an ad that is not as relevant. That’s a point of inequality, and even if those two ads are competing for a spot at that point, it’s not just about who has the highest bid anymore. Google will actually reward the person who has the more relevant ad. They will not need to pay as much as the person with the ad that is not as relevant.

If you have ads that are more relevant, Google rewards those and you can pay less to get in a higher position than someone with a less relevant ad.

This way, Google makes money when people click on these ads. If you have an ad that is of very low relevance, it also means that there is a lower chance that people are going to click on that ad. If people aren’t clicking on ads, Google doesn’t make money. Google wants to show ads that are going to get clicked on. They do this by showing relevant ads. They do this by showing ads that have a history of getting clicked on a lot. And if that’s yours, you’re going to get rewarded with a lower bid. You will not have to bid as high to get your ad higher on the page.

Display Network

The process is similar on the Display Network and on YouTube. The more you’re willing to pay for those ads, the more likely it is that Google is going to show your ad in that winning slot.

When we’re talking about the display network, there are so many places that the ad can show even if you only want to pay a small amount. They probably won’t be on the most high-end websites, but there’s always going to be someplace for your ad to show. Don’t feel like there’s going to be an endless bidding war and that you’re always going to have to increase your bid. It doesn’t really work like that. 

Search Network

The process is also similar on the search network. There are some very competitive keywords. With only four ads at the top of the page and a few ads at the bottom of the page, that’s a fairly limited inventory. 

So if you’re bidding on a very competitive keyword with limited inventory, there are instances that you might need to pay $100–$200 per click or more even if you have a very relevant ad. That’s probably only if you’re in an industry with very high customer value. It doesn’t happen often but there is a very wide range. Sometimes you can get away with paying 1 cent per click, sometimes it’s a lot more. It all depends on the auction, and what other advertisers are willing to pay to put their ads in the same spot. 

When Everything is Equal

Let’s say everything is equal, and you and another advertiser are bidding for the same ad placement.  

  • This other advertiser is bidding $1, and you are bidding $2. 
  • You are the only two advertisers bidding. 
  • Both your ads are very relevant. 

What happens in that case? How much are you going to pay? Do you need to pay $2? 

No, that’s now how it works. 

You would actually just pay $1.01. You would just pay slightly more than what the next highest bidder is paying

When you’re setting up ads, you’ll see that there are spots to set your maximum bid amount. But when your ads actually start running, your average cost per click is not going to be that high. If your maximum bid amount is $2, you’re not gonna pay $2 for every click. Again, you’re just going to pay slightly more than the next highest bidder is willing to pay. 

That is how bidding works.

If you’re going to invest in a software to help with your Google Ads campaigns, go check out my Adleg software suite.

It’s a collection of tools to help you set-up and manage your Google ads campaigns. These tools may actually be helpful in optimizing your bids and making it count for your business.

Click here to see all the helpful tools: