How does Google Ads work?

Google Ads looks simple from the outside: put money in, get customers out. Underneath, it's an auction that runs on every single search. Here's how it actually works, straight from Google's own help pages, in plain English.

What is Google Ads?

Google calls it Google's online advertising program. You write ads, choose the searches you want them to show for, and decide how much you're prepared to spend. When someone searches for something that matches, your ad can show on the search results page.

There's no minimum spend. In Google's words, you set and control your own budget, and you can change your ads, settings and budget at any time.

Google Ads has a few different campaign types. This post sticks to search ads, the text ads that appear when someone searches on Google, because in our view that's where most local businesses should start.

How does Google Ads work, step by step?

Here's the whole thing in five steps. The rest of this post unpacks each one.

1. You choose keywords: the words and phrases you want your ads matched to.
2. Someone searches. Google works out which ads have keywords that match that search.
3. An auction runs. Google calculates an Ad Rank for each eligible ad.
4. Ads show in order of Ad Rank, as long as they clear Google's minimum thresholds.
5. You pay per click. With cost-per-click bidding, you're charged when someone clicks your ad.

Google says Ad Rank is calculated every time a user does a search. So the auction you win at 9am is a different auction from the one at 9.01am.

Keywords and match types: which searches you show up for

Google defines keywords as words or phrases that are used to match ads with the terms that people are searching for. How closely a search has to match your keyword depends on the match type you choose.

• Broad match: your ad can show on searches related to your keyword. It's the default, and it reaches the most searches.
• Phrase match: written in quotation marks. Your ad can show on searches that include the meaning of your keyword.
• Exact match: written in square brackets. Your ad can show on searches with the same meaning or intent as your keyword. Google says it gives you the most control, and it reaches the fewest searches.

Then there are negative keywords, which stop your ads showing on searches containing those terms. For a plumber, that might be "jobs", "course" or "DIY".

This is where plenty of accounts quietly leak money. Broad match left unattended will happily show your ad to someone looking for a plumbing apprenticeship. Google won't complain. It still gets paid for the click.

How the Google Ads auction works

Once Google has the ads whose keywords match a search, it runs an auction to decide which ones show and in what order. It runs separate auctions for different spots on the page, so the ads at the top are chosen in a different auction from the ones further down.

Here's the bit most people get wrong: the biggest bid doesn't automatically win. The winner is the ad with the highest Ad Rank.

What is Ad Rank?

Google describes Ad Rank as a set of values that are used to determine whether your ads are eligible to show, and where they show compared with other advertisers' ads. It's built from six things:

• Your bid: the most you're willing to pay for a click.
• The quality of your ads and landing page.
• Minimum thresholds an ad has to reach before it can show at all.
• How competitive the auction is. If Ad Ranks are close, each ad has a similar chance. A bigger gap favours the higher ad, which may pay more for that certainty.
• The context of the search: the search terms, the person's location, their device, the time of day and other signals.
• The expected impact of ad assets, such as extra links, and other ad formats.

Google is plain about the result: the advertiser with the highest Ad Rank gets to show in the top position. The thresholds are typically higher for ads above the search results, so the top of the page is harder to reach than the bottom.

What is Quality Score?

Quality Score is Google's rating of how your ad quality compares with other advertisers. It's measured from 1 to 10 for each keyword, and it's based on three components:

• Expected click-through rate: how likely your ad is to be clicked when it shows.
• Ad relevance: how closely your ad matches the intent behind the search.
• Landing page experience: how relevant and useful your landing page is to the people who click.

One detail surprises people. Google says Quality Score isn't an input in the ad auction. It's a diagnostic tool, a warning light on the dashboard rather than the engine.

So why care? Because what it measures still matters. The quality of your ads and landing page is part of Ad Rank, and Google says Higher quality ads can often lead to lower CPCs. A relevant ad that sends people to a page built for their search is how you pay less for the same spot.

How bidding works

Your bid is the maximum you'll pay for a click, known as your max CPC. Google gives you two broad ways to set it:

• Manual bidding: you choose the bid amounts yourself.
• Automatic bidding: Google sets your bids for you, based on the goal you pick.

One automatic option is Smart Bidding. Google describes it as bidding strategies that use Google AI to aim for conversions, or conversion value, in every auction. In other words, it adjusts your bid search by search, chasing the outcomes you tell it matter.

Which means Smart Bidding is only as smart as the data you feed it. If your account can't tell a real enquiry from a wrong number, neither can the AI. Set up tracking first, then let it bid.

How you pay: cost per click

With cost-per-click (CPC) bidding, Google says you pay for each click on your ads. It's also known as pay-per-click, or PPC, which is where the term "PPC agency" comes from.

What you're actually charged is your actual CPC, and it's often less than your max CPC. Google says you only pay what's minimally required to clear the Ad Rank thresholds and beat the Ad Rank of the advertiser immediately below you. Bid generously, pay only what it takes to win.

There are exceptions. Your actual CPC can go above your max CPC if you've set a bid adjustment or turned on certain bidding features. Worth knowing before you're surprised by the bill.

Showing up only where you work

Google Ads location targeting allows your ads to appear in the geographic locations that you select. That can be a country, areas within a country, or a radius around a location.

For a local business, this matters a lot. There's no point paying for a click from someone three suburbs past where you'll travel. Google also offers "Presence" targeting, for when you only want to reach people in the places you choose, not people elsewhere who are just interested in them.

How you know it's working

Clicks aren't customers. What you want to know is which clicks turned into calls and enquiries, and Google Ads can track that. Its phone call tracking covers:

• Calls made directly from your ads.
• Calls to a number on your website after someone clicked your ad.
• Clicks on your phone number on your mobile website.

Without tracking, you're judging your ads on clicks and impressions, which is like judging a tradie on how many times they drove past your house. With it, you can see what each enquiry cost and switch off what isn't earning its keep.

That's how we run Google Ads management at Loud Yak: tracking first, tight keywords, landing pages built for each search, and weekly tuning. If you're weighing ads against the slower, free-per-click route, read Google Ads vs SEO, or see what SEO involves.

FAQ

Do I pay for Google Ads if nobody clicks?

Not with cost-per-click bidding. Google charges you for each click on your ad, so an ad that shows but isn't clicked costs nothing under that model.

Does the highest bidder always get the top spot?

No. The top spot goes to the highest Ad Rank, which combines your bid with the quality of your ad and landing page, Google's thresholds, the competition, the context of the search and your ad assets.

What is a good Quality Score?

Google scores it from 1 to 10 for each keyword and calls it a diagnostic tool, not an input in the auction. Use its three parts (expected click-through rate, ad relevance and landing page experience) to see what to fix.

Is there a minimum spend on Google Ads?

No. Google says there's no minimum spending commitment and you set and control your own budget.

Will Google Ads help my normal Google rankings?

No. Google says it doesn't accept payment to rank a site higher in search. Ads and organic rankings are separate, which is why SEO is its own job.

Sources

1. Google Ads Help: Google Ads definition
2. Google Ads Help: About Ad Rank
3. Google Ads Help: About Quality Score for Search campaigns
4. Google Ads Help: About keyword matching options
5. Google Ads Help: Cost-per-click (CPC) definition
6. Google Ads Help: Actual cost-per-click (CPC) definition
7. Google Ads Help: About Smart Bidding
8. Google Ads Help: Target ads to geographic locations
9. Google Ads Help: About phone call conversion tracking
10. Google Search Central: How Search works