Bidding in Google Ads

A bid in Google Ads refers to your maximal CPC. This defines the upper threshold you are willing to pay for a click on your ad.  Each time your ad is eligible to appear, an auction among your ads and all other eligible ads takes place. Along with QS, your CPC bid determines the positioning of your ad – the Ad Rank.

Ad Rank

The Ad Rank is the product of the maximal CPC-Bid and QS. The Quality Score is composed of several factors, including CTR, Landing Page, and Keyword Relevance.The Ad Rank determines the position of your ad, and in combination with your QS, the actual CPC can be defined. The figure above shows that even with a lower maximal CPC, your ad can achieve a higher Ad Rank due to its improved QS. Therefore, it is very important to increase QS of your keywords, ads, landing pages and account.

The actual CPC is calculated as follows:

Here “p” is the actual CPC. “b” expresses the maximum bid of an advertiser. “QS” stands for Quality Score. The numbers represent the respective ad rank position.

Linear versus Portfolio Bidding

There are two bidding approaches you can take to set the CPC for each campaign: Linear bidding and Portfolio bidding. In the Linear bidding approach you optimize your positions one by one, without looking at other campaign positions. In the following simplified example, the company’s aim is to reach a CPO of €20. They look at each campaign separately, and set the CPC according to their CPO goal. Following this approach, the company is able to reach a total amount of 25 conversions.

In contrast, following the Portfolio bidding approach, you try to optimize the whole portfolio by considering all campaigns simultaneously. The larger the portfolio, the more complex this task can get. Basically, you choose the alternative for each campaign that maximizes the number of conversions at the target CPO.  In this example, following the portfolio approach, the company is able to reach a total amount of 30 conversions. This shows that the Portfolio bidding approach is likely to improve your position compared to the linear bidding approach. For example, in the described scenario, at an equal CPO the total number of conversions outweighs by 20%.

Machine versus Human Bidding

Since effective bidding on large portfolios can be too complex for humans to handle, this task is often accomplished by machines using sophisticated algorithms. However, this still requires a lot of human interaction since it cannot replace the knowledge and experience of the marketer. The right balance between marketer and technology is critical for campaign success and scalability.

Marketer´s tasks	Machine´s tasks
Set business metrics and goals	Automate management
Manage performance and evaluation	Campaign structure
Business update	Algorithms bidding Reports Creation