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5 min read

Beginners guide to the PPC Auction

This article was updated on: 01.04.2022

Two months into lockdown and you’ve hit a wall. You’ve watched every Netflix series going, baked banana cake six times and read more books than any sane human being. Now what?

Well, I’m glad you asked because now is the perfect time to be investing in yourself. And what better way than learning how search engines work! 

So, what is the “Ad Auction”?

Effectively, every time you carry out a search on Google or Bing, the search engine runs an auction to decide which adverts to show and in which order. This is known as the ad auction. You’d think that, from Google of Bing’s point of view, it would be best to simply sell the top positions to the highest bidders. But in reality, it would only do more harm than good.

You see, if advertisers could just buy their way to the top of the page then that would lower the quality and relevance of the Google/Bing search results. This would lead to people switching away from using their preferred search engine, and then advertisers would move to another platform/search engine. With this in mind, the auction must balance the financial interests of Google/Bing whilst ensuring that all ads are relevant to what the users are actually searching for. 

So, how does it work?

As stated by Google, each time an ad is eligible to appear for a search, it goes through the ad auction. The auction determines whether or not the ad actually shows and in which ad position it will show on the page.

  1. When someone searches, the Google/Bing Ads system finds all ads whose keywords match that search
  2. From those ads, the system ignores any that aren’t eligible, like ads that target a different country or are disapproved based on a policy violation
  3. Of the remaining ads, only those with a sufficiently high Ad Rank may show.
  4. Ad Rank is a combination of your bid, ad quality, the Ad Rank thresholds, the context of the person’s search, and the expected impact of extensions and other ad formats.

Hold on. What are the Ad Rank Thresholds?

Essentially, if your bid is lower than the threshold, your ad won’t show and if none of your competitors are eligible to show, the threshold is the price you pay for the click. These thresholds are determined dynamically at the time of each auction and take into account a whole range of factors.

These factors help ensure that when it comes to the price advertisers pay and the ads users see, the right consideration is given to the quality of the user experience, advertiser bids, and the value advertisers place on users’ engagement with their ads.

These Ad Rank Factors include:

Your ad quality: To help maintain a high-quality ad experience for consumers, Google and Microsoft ensure that lower-quality ads have higher thresholds. This is often referred to as Quality Score which takes into account the following factors:

  • Expected click-through rate (CTR), which reflects the likelihood a user will click on an ad.
  • Ad relevance to the query. The ad copy should clearly relate to what the user is looking for.
  • Landing page experience. Does the page provide a good user experience and reflect the intent of the query?

Ad position: Ads which appear higher on the search results page have higher thresholds than ads that appear lower on the page, this way people are more likely to see higher quality ads higher on the page.

The topic and nature of the search: Thresholds can vary based on the nature of the user’s search terms. For example, thresholds for marketing searches may be different than searches for sports equipment.

Related Auctions: Thresholds can also depend on the auctions for related queries. For example, Ad Rank thresholds for the search term [car insurance] could be informed by auctions for the search terms [auto insurance] and [collision insurance].

User signals (location and device type): Thresholds can vary based on user attributes, including the location of the user (for example, thresholds can vary country by country) and the device the user is using (for example, mobile versus desktop).

Auction-time Bidding

Smart Bidding is a subset of automated bid strategies that use machine learning to optimise for conversions or conversion value in each and every auction – a feature known as “auction-time bidding”. 

Target CPA, Target ROAS, Maximise conversions, and Enhanced CPC are all Smart Bidding strategies. 

  • Target CPA – Optimises for conversions whilst targeting a specific cost per action.
  • Target ROAS – Optimises for conversion value while targeting a specific return on ad spend.
  • Maximise conversions – Optimises for conversions whilst spending your entire budget instead of targeting a specific CPA.
  • Enhanced CPC (eCPC) – Gives the user control over bids whilst automatically adjusting to maximise conversions.

Benefits of Smart Bidding

Here are some of the benefits of smart bidding, according to Google:

Advanced machine learning – Uses algorithms to factor in a wider range of parameters that affect performance (more than a single person or team could compute).

Wide range of contextual signals – With auction-time bidding, you can factor a wide range of signals into your bid optimisations. Signals are identifiable attributes about a person or their context at the time of a particular auction. This includes attributes like device and location, which are available as manual bid adjustments, plus additional signals and signal combinations exclusive to Smart Bidding.

Flexible performance controls – set performance targets and customise settings to your unique business goals. Optimise Search bids to your selected attribution model, including data-driven attribution. 

Key takeaways

Ultimately, the most important thing to remember is that even if your competition bids higher than you, you can still win a higher position – at a lower price – with highly relevant keywords and ads. In addition, since the auction process is repeated for every search on Google/Bing, each auction can have potentially different results depending on the competition at that moment. Therefore it’s normal for you to see some fluctuation in your ad’s position on the page and in whether or not your ad shows at all.