In principle, it does not cost anything to simply place an advertisement among search results. Search engine advertising works on a cost per click (CPC) basis, so advertisers only incur charges when a user clicks on an ad and is redirected to the landing page. The cost of each click is something that advertisers are able to decide for themselves, however, the frequency that the advert is displayed corresponds to the size of the offer. The allocation of the ad space is then decided by an auction, also known as Real Time Bidding.
Real Time Bidding: the search engine auction
For every query entered, the search engine checks the terms to determine which ads are relevant and helpful for the user.
When the search term contains a commonly occurring keyword, there are often several potentially suitable adverts, which are rated in order of relevance in a split second. One important criteria in selecting the ad in this case is the CPC bid offered by the advertiser; however, the quality of the advertisement must also be taken into account in order to create the most helpful selection of results for the user. An especially highly ranked ad is more likely to be shown in the most prominent positions during a relevant search. As the top-tier ads are determined by their CPCs and quality scores, the value of the advertisement can be found with the following equation:
Top ranked ads = highest CPC bid x quality score
CPC bids
With CPC bids, the advertisers set the maximum price that they are prepared to pay for a click on their ad. The higher the offer, the more likely it is that the advert will attain a prominent position in the search results. In return, Google’s advertising platform grants its advertisers a high degree of transparency and up-to-date information about rates in search engine advertising. Through fixed monthly and daily budgets, the advertiser can define exactly how much money should be spent on SEA campaigns daily. Google keeps the ad in the search results until the budget for the day is used up. For example, a monthly budget of 3000 dollars can be split into 100 dollars a day, but just how many appearances in the search results that translates to depends on the cost per click. The cost per click depends on the consumer demand and can vary from just a few cents to several dollars.
Google‘s quality score
Google has a quality score in place as part of its rating system in order to stop low-quality adverts with high bids landing at the top of the search results. This is orientated toward the demands of the user and takes their online behavior into account. A well-thought-out SEA campaign with high-quality content will rank considerably higher in the search engines, as it is helpful and inviting to the user. It follows then that a high CPC bid is not the only factor in creating a successful advertisement. Google’s quality score rates the following factors as essential for an effective advertising campaign:
- Expected click-through rate: This is based on how often the ad is run (impression) and the number of clicks one ad yields. Advertisements that have a high click-through rate will be rated as more relevant.
- Click-through rate to the display URL: if the URL used in the ad has already achieved a great deal of clicks, the ad’s quality score will also be set higher. Therefore the display URL does not have to match the link target.
- Landing page quality: if a user arrives on a link target via an ad that was featured for its relevance, transparency, and user-friendliness, the ranking will improve.
- Relevance of the ad copy: adverts that take up the top spots have titles and copy that perfectly fits the search query. The more relevant the ad copy, the better the ranking.