hal varian ppc GOD

AdRank Quality Score & CPC Explained

By Paul Morris

In response to an old post of PPC CTR I received an email asking me more about Quality Score, Ad Rank, etc. This email got me to thinking about showcasing how important Quality Score and ultimately Ad Rank are for PPC. As a result I have put the following post together that is aimed at helping you understand more about calculating CPC’s and Ad Rank.

If my explanation loses you then view the above Hal Varian (the GOD of Google PPC) video first, move on to the below infographic and then come back to my explanation.

AdRank Explained 

Adrank determines where you appear and what you pay in the great Google PPC ad auction/ results. The highest Ad Rank will appear in the first position, the second highest Ad Rank in the second position, etc.

AdRank = Max. CPC x Quality Score.

Example of how AdRank works 

ppc first chart

Put simply the above shows that throwing your ‘Money’ around like Milli Vanilli is not the answer to high PPC positions. E.g. Advertiser D is willing to pay alot of money however finds himself in position 4 due to poor quality score.

CPC’s Explained: 

Actual CPC = (AdRank to hit /Quality Score of Advertiser) + £.01

An advertiser’s actual CPC is measured by dividing the AdRank to hit (the AdRank of the competitor below them) by their own Quality Score + £.01.

ppc second chart

The value of Quality Score  

The below table highlights the importance of quality score. By increasing the quality score you can then choose to pay less per click for the same position or hit higher positions for the same amount of cash. In the below example Advertiser B has managed to improve their Quality score and you can see the benefit it has to the CPC’s Advertiser B ultimately pays and to their now dominant AdRank positioning.

ppc third chart

Here is a great infographic that explains an overview of PPC much better than I:

adwords explained infographic