How do Google Ads work? (Easy Guide for Beginners)

Google Ads provides a tremendous opportunity for businesses that want to reach their target audience at scale.

At Reliablesoft, we’ve managed Google Ads campaigns for dozens of clients, helping them achieve a significant return on their investment.

In this guide, I will teach you the basics of how Google Ads works so you can begin using them for your business.

What are Google Ads?

Google Ads is an advertising platform that allows you to advertise your business on Google and its partner’s websites.

You have undoubtedly seen these ads in action, whether searching for something or just visiting one of your favorite websites. When a user clicks on your ad they are taken to your business’ site.

Google’s vast data collection and extensive targeting options make it easy to get your ads in front of the right audience.

Because Google is the most popular search engine in the world, there are plenty of opportunities to reach people in any niche.

Businesses simply need to open a Google Ads account, create their campaigns, and begin advertising to their target audience.

Where do Google Ads Appear?

Google offers a variety of ad types that can appear in several different places.

Google Search Ads

Search ads appear on the results page for searches made through Google.com. They can also appear on Google Maps, Google Shopping, and other Google partner sites that display text ads.

Google Display Ads

Display ads can appear on Youtube, Gmail, and other Google partner sites.

Google Shopping Ads

Shopping ads appear in Google search results and in its comparison shopping engine Google Shopping. They can also appear across Google’s partner sites.

Google Video Ads

Video ads can appear on Youtube and app ads can appear across all of Google’s properties.

How Do Google Ads Work?

Let's start with a simple overview of how Google Ads works for advertisers and consumers:

Advertisers create ads targeting a specific group or subject. Because ads are commonly shown for Google searches, this generally involves selecting the search terms, also known as keywords, that you want your ads to show for.

Google displays these ads to relevant users. They charge the advertiser based on the settings configured when creating the ads. This may only be when someone clicks the ad or it may be whenever someone sees the ad.

When a user clicks on an ad, they are directed to the advertiser’s landing page. This is the web URL the advertiser specified when creating their ads.

If all goes well, a certain number of these visitors will result in sales. The goal is to have the value of these sales exceed the cost for the ads, thus resulting in a profit.

Now, let’s take a more in-depth look at how all this works.

• Google Ads Auction System
• Google Ads Bidding
• Google Ads Account Structure
• Google Ads Campaign types
• Google Ads Ad Groups
• Google Ads Keyword Types
• Google Ads Ad Extensions
• Google Ads Performance Metrics and Terminology

Google Ads Auction System

Google Ads uses a pay-per-click (PPC) model. This is the basis for pricing your ads and determining which ads show when multiple advertisers are competing for the same users.

PPC ads like those on Google use a hyper-fast, live auction to determine which ads are shown.

When a customer enters a search into Google’s search engine, Google runs its auction to rank all the ads that are eligible to show for that search. It then displays the top results in order.

The metric Google uses to determine which ads rank where is called AdRank.

There are a variety of factors that impact your AdRank:

• Bidding: The amount you are willing to pay for a customer to click your ad (more on this later). Higher bids lead to higher rankings
• Search context: Google will evaluate the location of the search, the time it is made, what device is being used, and other contextual factors.
• Ad extensions: These extensions add more features to your ads. Google estimates what impact they’ll have on your ads’ performance.
• Quality Score: A metric used to evaluate the quality of your ads.

Quality Score

Quality score is a metric that measures the performance of your ads and keywords. The score can range from 1 to 10.

There are three factors used to calculate your Quality Score:

1. Expected Clickthrough Rate

Google estimates a clickthrough rate for your ads based on the historical performance of your target keywords given the position of your ad. Clickthrough rate is the percentage of people who click your ad after seeing it.

They assign a rating of average, above average, or below average. This rating directly impacts your Quality Score.

2. Ad Relevance

Ad relevance measures how closely your ads match a searcher’s intent. It is based on the relationship between your keywords, ads, and landing page. The more relevant your ads, the better your Quality Score.

3. Landing Page Experience

Your landing page is the web page visitors land on after clicking your ads. Google measures how well your website gives users what they are looking for when conducting a search. They do this through automated systems and human evaluation.

Google Ads Bidding

Bidding determines how much you are willing to pay for each click to your website.

There are three pricing options for your bids:

• Cost per click (CPC): Your bid determines how much you pay when someone clicks your ad.
• Cost per engagement (CPE): Your bid determines how much you pay when someone performs a specific action on your ad.
• Cost per mille (CPM): Your bid determines how much you pay per 1,000 impressions.

You can choose to configure your bids one of two ways:

Manual bidding

With manual bidding, you set the max bid amounts on a keyword and Ad Group basis. This gives you more granular control over your bids so that you do not overspend on low-performing ads or keywords.

You have the option to enable “enhanced CPC” for manual bidding. This allows Google to adjust your bids up or down to better maximize results.

Automated bidding

With automated bidding, Google will automatically set the bids on a per auction basis. They will take into account what your competitors are bidding on and the maximum budget you have set for your campaign.

There are a few different strategies you can choose for automated bidding:

• Maximize conversions: Google sets bids to get the most conversions within your budget.
• Maximize clicks: Google sets bids to get the most possible clicks within your budget.
• Target cost per acquisition (CPA): You set a CPA goal and Google sets bids to maximize conversions while staying within your target CPA.
• Target impression share: Google sets bids to get a certain amount of your ads to display in the position you specify. For example, at the very top of the page.
• Target return on ad spend (ROAS): You set a ROAS goal and Google sets bids to maximize conversions while meeting or exceeding your target ROAS.
• Maximize conversion value: Google sets bids to get the greatest conversion value possible within your budget.

Google Ads Account Structure

Google Ads follows a simple hierarchical structure that makes it easy to manage your account.

Here is how it looks in order:

Campaigns

The top-level of your account is your campaigns. The other parts of Google Ads such as Ad Groups, ads, landing pages, audiences, and keywords all exist within a campaign. Each campaign has its own settings including:

Budget

Your budget determines how much you want to spend per day while the campaign is active. Google will do its best to get enough clicks to fill the budget but it will not overspend.

Note, that the daily budget is averaged out over the course of 30 days.

This allows Google to increase spending on days when there is more search activity and lower it when there is less activity.

For example, if you set a daily budget to $10 per day, it is very unlikely that you will have $10 worth of clicks each day. You are more likely to see a day with $10, one with $7.50, and another with $12.50.

Devices

This setting lets you modify your ads based on the device category. These include desktop, mobile, tablet, and TV screens.

You can adjust your bids for any device type by applying a modifier that can range from -100% to 900%. Dropping the bid by -100% for a device will ensure that ads do not show on it.

Locations

This setting allows you to choose in which physical locations you want your ads to show. You can adjust your bids or completely exclude certain areas based on cities, regions, and countries.

Google Ads Campaign types

There are several different campaign types available in Google Ads.

Search Ad Campaigns

Search ads are text-based ads that appear on Google search results pages. They are displayed at the top of the page above the organic search results.

Search ads are highly effective as they get in front of a customer the moment they are looking for something specific.

The ads use the same format as the other listings so they blend in nicely with the organic results.

When you create a search campaign you set a headline and description for each ad that you want to run.

You also have the option of using responsive search ads. With responsive search ads, you provide multiple versions of headlines and descriptions that Google uses to dynamically come up with different combinations to show to visitors.

Over time, Google will discover the best performing combinations and will use those to maximize results.

Display Ad Campaigns

Display campaigns appear across the network of Google partner sites called the Google Display Network. There is a wide range of different sites to be able to provide quality advertising opportunities to its users.

Website owners are paid for every click or impression and advertisers have new ways to reach their target audience.

Ads on the display network are a mixture of text and visuals.

Shopping Ad Campaigns

Shopping campaigns appear in the search results for relevant keywords either at the top of the page or on the sidebar. They also show when you click the Shopping tab next to the Google search bar.

With Shopping Ads, you do not design any ads but rather Google will use products from your eCommerce store.

To do this you need to set up a Google Merchant Center account. This is the platform you use to manage the product listings for Google Ads.

You upload your products to Merchant Center either by a spreadsheet, XML file, or API. You can then link your Merchant Center account to your Google Ads account to create a Shopping campaign.

Shopping campaigns use product groups and products instead of Ad Groups and ads. By default, a campaign will include every product in your feed.

You can refine your campaigns by making different feeds or excluding different product groups. To do the latter, you must assign custom fields to distinguish your products when setting up your feed.

Video Ad Campaigns

Video ads are shown at the beginning of videos on Youtube. Youtube is based on a search engine just like Google so you’ll use keywords to decide who to target.

App Ad Campaigns

App campaigns are used to advertise your mobile app on the Google Search Network, Display Network, Youtube, and Google Play.

The targeting is a little different as you don’t handle it yourself. Instead, you just tell Google about your app and set a bid and budget. They’ll handle the rest.

Google Ads Ad Groups

The next level of your Google Ads account is Ad Groups. These exist within a campaign. They contain a group of ads and keywords.

They can also include a specified audience. Audiences are user segments Google has used to classify certain people. You can also create your own audiences in the Audience Manager within your Google Ads account.

When you configure an Ad Group, you’ll need to create at least one ad and add one keyword. If you choose manual bidding for your bidding strategy, you’ll also need to select the default max CPC for the group.

Because you cannot control which ads show for which keywords in the ad group, it’s recommended to keep ad groups small. You can always create more groups for all your ads and keyword targets.

Ads

Ads are the content that is actually displayed to visitors. They have different formats based on the campaign type.

Search ads consist of a headline, a description, a final URL, and a display URL.

The headline is broken into three sections, each with a 30 character limit.

Descriptions are broken into two sections, each with a 90 character limit.

The final URL is the link to the landing page where you want to send your audience.

The display URL allows you to show a different URL to users. You can use two parts divided by a slash, each with a 15 character limit. For example, reliablesoft.net/google/ads.

The domain for the display URL must match that of the final URL.

As I previously mentioned, with responsive search ads, you can create a set of different headlines and descriptions and have Google dynamically choose the best combination.

Display ads can be a mixture of text and visuals.

Shopping ads display products from an eCommerce catalog. They’ll include the item’s price, description, images, and attributes.

Google Ads Keyword Types

Keywords

are the search terms that someone uses to find something on Google.

Every ad group targets a list of keywords that you set.

When you add a keyword to your campaign, you also have to set the match type. Match type determines what variations of the keyword you want your ads to show for.

As an example, if you add the keyword “shoes” to your campaign. Do you only want your ads to show the term “shoes”? Or do you want them to also show for searches like “black shoes”, “men’s shoes”, “size 11 shoes” and so on?

Match type allows you to configure this. There are three match types you can use:

1. Broad match

This is the default setting for any keyword that you add to your list. To use this type you simply add the keyword without appending anything before or after.

With broad match, your ads will show for all related searches, even if they do not contain the exact phrase.

For example, if you use the term “shoes” your ads may appear for searches like “sneakers” or “footwear”.

2. Phrase match

With phrase match, your ads can appear for search queries that contain your keyword phrase in its exact order. These may include searches that have words before or after the phrase.

You select phrase matches by putting quotes around the phrase. For example, “running shoes”.

With this search, your ads will be eligible for the term men’s running shoes but won’t appear for men’s shoes.

3. Exact match

With this match type, your ads will only show the exact phrase that you use. You set exact match keywords by putting the term within brackets, like this [black running shoes].

Note, that your ads may show for words that have the same meaning. For example, with the phrase [lawn mowing service], your ads may also appear for “grass cutting service” searches.

You also have the option to completely exclude keywords from your campaigns. These are called negative keywords.

Let’s say you are a clothing company but you don’t sell hoodies. You can add the term “hoodies” as a negative keyword to ensure that your ads do not appear for this search.

Google Ads Ad Extensions

As their name suggests, ad extensions allow you to extend your ads to include more information that might be useful to your audience.

Here are the different types of ad extensions:

Sitelink extensions - This extension adds additional links to your website, beneath the description of your ad. They allow you to show off more of your site and increase the chances searchers find something worth clicking on.

Offer extensions - This extension allows you to display promotional offers.

Call extensions - This extension allows you to add a phone number to your ad so interested viewers can quickly reach out to you with any questions.

Locations extensions - This extension lets businesses with a physical presence include their location and phone number in their ads.

App extensions - This extension adds a link to download an app for mobile users.

Google Ads Performance Metrics and Terminology

Measuring and improving the performance of your Google Ads is an important part of your advertising success. When you are aware of where your ads are doing well and where they are not, you can make changes to maximize your results.

There are several important performance metrics available in your Google Ads account.

Here are some of the most important Google Ads metrics you should be aware of along with a few related terms.

Impressions - This metric shows the number of times your ad is shown on Google or its network of sites. Each time it is shown counts as one impression.

Cost - This metric tells you how much you have spent on a campaign. If you’re viewing performance for all campaigns the metric represents the total you have spent across all campaigns.

Clicks - A click is recorded anytime someone clicks on a link in your ad.

Average CPC - This is the average amount you’ve been charged per click during a campaign. It is calculated as Cost / Clicks = Average CPC.

Conversions - A conversion is when someone completes an action you’ve deemed important. It could be a sale, an email sign-up, or an add-to-cart.

Conversion rate - This metric measures what percentage of a group of people results in a conversion. It is one of the most important factors to monitor when creating successful ad campaigns.

You can see your conversion rate by filtering the metrics on the Overview tab of a campaign. You can also view it on an ad or keyword basis. You calculate the conversion rate by dividing the number of conversions by the total number of people.

Let’s say you have an ad campaign that generated 100 clicks to your site that resulted in 5 sales. Your sales conversion rate would be  5 / 100 = 0.05 (or 5%).

Return on ad spend (ROAS) - This metric measures the percentage of profit you earn for every dollar you spend on ads. For example, if you spent $1,000 on a campaign that results in $3,000 of revenue, your ROAS is 300%.