Search ads on Google and the Search Network are constantly in auction. The position of a keyword-targeted ad is based on its Ad Rank.
Ad Rank = CPC Bid x Quality Score
CPC Bid is the Maximum Cost-per-click (Max. CPC) you are willing to pay for a single click when your keyword triggers your ad.
Quality Score for Google and the search network is a dynamic metric assigned to each of your keywords. The Quality Score for Ad Rank on Google and the search network is determined by:
- The historical clickthrough rate (CTR) of the keyword and the matched ad on Google; if the ad is appearing on a search network page, its CTR on that search network partner is also considered
Your account history, which is measured by the CTR of all the ads and keywords in your account
- The historical CTR of the display URLs in the ad group
- The relevance of the keyword to the ads in its ad group
- The relevance of the keyword and the matched ad to the search query
- Your account’s performance in the geographical region where the ad will be shown
- Other relevance factors
In the example above with 4 different advertisers, the Ad Rank of advertiser B’s ad is determined by:
Ad Rank (of B) = Max. CPC (of B) x Quality Score (of B)
In the example above with 3 ads, the Actual CPC of advertiser A’s ad is calculated as:
Actual CPC (of A) x Quality Score (of A) = Max. CPC (of B) x Quality Score (of B)
Actual CPC (of A) = Ad Rank (of B) / Quality Score (of A)
Relevant keywords and ad copy, a high CTR on Google, and a high Maximum CPC (CPC Bid) will improve the ranking of your ad.
You can even take your ad ranking one step further. Once your ad exceeds a certain Quality Score and CPC Bid threshold, it is eligible to appear above Google’s organic search results as opposed to on the right hand side. At any given time, up to a total of 3 ads are eligible for ranking above the organic search results.
The CPC bid threshold is determined by the matched keyword’s Quality Score; the higher Quality Score, the lower the CPC threshold. This ensures that quality plays an even more important role in determining the ads that show above search results.
Inside Adwords Blog has included a video to explain Adwords ad auction system.
Inside Adwords previously mentioned improvements to Google Adwords Quality Score: