Google uses a quality score in its ad auctions to determine ad position based on relevance. The quality score is calculated based on click-through rate, relevancy of ad to search query, and landing page quality. Before quality score, the highest bidder got the top ad spot but actually paid the bid of the lower advertiser. Now, max bid times quality score equals ad rank, with the highest ranking ads getting top spots. This improves users' experience and encourages better ads, benefiting Google, advertisers and users.

1. Why Does Google Use a Quality Score Google Ad Auction Pricing Model:
in Determining Ad Position? Pre- and Post-Quality Score
Google wants to display the most relevant advertiser ads to their Google Ad Auction & Bidding:
searchers. That makes users happy because they get more relevant PRE-QUALITY SCORE & Highest Bid Buys Best Ad Position
ads, makes advertisers happier because they get better results, and Advertisers set a max bid but the price they actually paid for a click
makes Google happier because happy users and happy advertisers = was equal to the bid of the advertiser below them, as detailed below:
more people using the Adwords system.
Actual CPC
Max Bid (price paid) Ad Position
Advertiser #1 $4 $3 1
Advertiser #2 $3 $2 2
Advertiser #3 $2 $1 3
Advertiser #4 $1 Not displayed
Google Ad Auction & Bidding:
POST QUALITY SCORE & Introduction of Ad Rank
Max Bid times Quality Score equals Ad Rank and Ad Rank
determines Ad Position. Highest Ad Rank = Highest Ad Position
What Are the 3 Components to and the better the Ad Position the higher the CTR which improves
Google Quality Score Calculation? Quality Score even further (the QS Virtuous Cycle).
Quality Ad
1. Click Thru Rate (CTR) – Most important component
Max Bid x Score = Ad Rank Position
of Google Quality Score calculation
Advertiser #1 $4 x 1 = 4 Not displayed
By allowing users to vote thru clicks Google has millions of
Advertiser #2 $3 x 3 = 9 2
people helping decide which ads best match particular search
Advertiser #3 $2 x 6 = 12 1
queries. You need clicks to improve your quality score; therefore
Advertiser #4 $1 x 8 = 8 3
new advertisers often have to start their campaigns with higher
max bids to ensure they have good asd position out of the gate.
As they gain clicks and improve their quality scores they can Actual Cost per Click Calculation Example:
reduce their max bids and still preserve their good ad positions.
Quality Actual
2. Relevancy – Second most important component Max Bid x Score = Ad Rank CPC
of Google Quality Score calculation Advertiser #1 $4 x 8 = 32 (24/8) = $3
Relevancy of the keywords to the search query as well as ad text Advertiser #2 $4 x 6 = 24 (12/6) = $2
is important to Google. They determine relevancy by analyzing Advertiser #3 $4 x 3 = 12 Minimum
language and context of test ads and landing pages to determine price
how well it relates to the search query, therefore the likely
searcher intent.
Cost per Click Equation:
3. Landing Page Quality – Third most important component
of Google Quality Score Calculation P1 = (B2 x Q2)/Q1
An ad is only useful to a searcher if the landing page helps them
Where P1 = CPC of Advertiser #1
to find the products or information they are looking for. A high
B2 = Advertiser #2 Max Bid
quality landing page should have original and relevant content
Q2 = Advertiser #2 Quality Score
related to the search query, fast load time, be easy to navigate,
Q1 = Advertiser #1 Quality Score
and be transparent about the nature of the advertisers business
and how they plan on using a site visitor’s information. Therefore:
P1 = ($4 x 6)/8 = $24/8 = $3
Increasing your quality score decreases your cost per click as
Components illustrated below. Where Quality Score increased from an 8 to a 10,
of Quality Score the result is a decreased CPC from $3 to $2.40.
Calculation
Quality Actual
Max Bid x Score = Ad Rank CPC
Advertiser #1 $4 x Q1 (10) = 40 ($4 x 6 /10)
= $2.40
Advertiser #2 B2 ($4) x Q2 (6) = 24
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