Google released a new Ad Rank formula last year, signaling a fundamental change to how it is calculated. Ad Rank is the algorithm Google uses in AdWords to determine how high your ad will rank and how much you will have to pay per click. Previously, it was calculated using quality score and maximum bid / cost-per-click.
Now, it takes into consideration ad extensions and formats. This means that your ad extensions and formats will play in role in your ad position and the price you pay-per-click.
Of course, we do not know the exact weighting of these factors. How much you pay per click is calculated as such:
Your Price = Ad Rank of Person Below You / Quality Score + $0.01
Google has been aggressively pushing ad extensions since early last year. This includes making it mobile-friendly. Adoption has been relatively slow though, which probably pushed Google into incorporating it into its new Ad Rank formula.
It’s not only about using ad extensions though. Google reports that it will look at “expected impact from ad extensions and formats”. This means that it will try to predict how well your ad will perform depending on click-through-rates, relevance, and how visible extensions are on the search results page.
The new Ad Rank formula also puts more importance on your Quality Score and maximum bids to determine if your extensions will be shown.
What Can You Expect With Google’s New Ad Rank Formula?
- Increasing CPCs – With more people adopting ad extensions, you can expect your cost-per-click to increase. This is because your cost-per-click is directly proportional to your nearest competitor.
- Less Organic Search – Ad extensions will take up more space above-the-fold in the SERPs. This means that there is less space for organic search results. It might come to pass that only paid search results will be seen above-the-fold in the SERPs.
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