Google Ads for Small Businesses: How It Works

The ad auction

Google's page on how the Google Ads auction works explains that an auction runs every time someone searches on Google or visits a site that shows ads. Separate auctions run for each ad location; for example, the top ads are chosen by a different auction from ads lower on the page.

You take part by choosing keywords, writing ads and setting a bid. The bid is the most you are willing to pay for a click. Google says that what you actually pay is often less, and that you can change the bid at any time.

Ad Rank: why the highest bid does not always win

Whether an ad shows, and where, is decided by Ad Rank. Google calculates it twice in each auction: first to decide whether the ad is eligible to show, then to rank it against the other eligible ads. Google lists six factors:

• Your bid.
• The quality of your ads and landing page, including how useful and relevant they are, whether the landing page meets the expectations the ad set, and how easy it is to navigate.
• Ad Rank thresholds: minimum quality levels an ad must reach to show at all, or in a particular position.
• The competitiveness of the auction. Ads with similar Ad Rank have a similar chance of a position; as the gap grows, the higher-ranked ad is more likely to win but may pay more per click.
• The context of the search: the search terms, the person's location, device, time, other ads and results on the page, and other signals.
• The expected impact of ad assets, such as a phone number or extra links to pages on your site.

Google's summary is that even when competitors bid more, you can still win a higher position at a lower price with highly relevant keywords, ads and assets.

Quality Score: a diagnostic, not a target

Quality Score is often misunderstood. Google's page about Quality Score describes it as a diagnostic tool that shows how your ad quality compares to other advertisers, on a scale of 1 to 10, for each keyword. It states that Quality Score "is not an input in the ad auction" and is not a key performance indicator to optimise on its own.

It combines three components, each rated "Above average", "Average" or "Below average" against other advertisers whose ads showed for the exact same search over the last 90 days:

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

Use it to find weak spots. A "Below average" landing page experience, for example, points at the page, not the ad.

Keywords, match types and negative keywords

Keywords are the words or phrases you choose to match your ads to what people search for. Google's page on keyword matching options describes three match types:

• Broad match, the default, written as plain text. Ads may show on searches related to the keyword, including ones that do not contain its direct meaning. Google says it is critical to use Smart Bidding, its automated bidding, with broad match.
• Phrase match, written in quotes, such as "tennis shoes". Ads may show on searches that include the meaning of the keyword.
• Exact match, written in square brackets, such as [red shoe]. Ads may show on searches with the same meaning or intent. It gives the most control but reaches the fewest searches.

Negative keywords stop ads showing for searches you do not want. Google's example is an optometrist adding "wine glasses" and "drinking glasses". Negative keywords do not match close variants, so you need to add synonyms and singular or plural forms yourself.

To see what people actually typed, use the search terms report. Reviewing the report regularly shows which searches are worth more and which need a negative keyword.

Location targeting

Google's page on targeting ads to geographic locations lets you choose countries, areas within a country, or a radius around a location.

There is a setting that matters for local businesses. The broader option, "Presence or Interest", can reach people who have shown an interest in your locations as well as people who are there. Google suggests "Presence" when you only want to reach people in those locations, not people elsewhere who are interested. A business that only serves one area may want "Presence", so check this setting rather than leaving it as it is.

How budgets work

Google's page on managing your spend explains that you set an average daily budget for each campaign, and can change it whenever you like. Two rules surprise people:

• On any given day, actual spend can be up to twice the average daily budget. Google calls this overdelivery.
• Over a month, you are not charged more than the monthly charging limit, which Google sets at 30.4, the average number of days in a month, times the average daily budget.

So a busy day is not a fault, but the budget is a monthly average rather than a daily cap. Automated bid strategies aimed at conversions need conversion tracking to work.

Conversion tracking

Without conversion tracking you can see clicks and cost, but not which keywords bring in customers. Google's page about conversion measurement says you choose what counts as valuable, such as a purchase, a sign-up or a phone call, and lists the sources:

• Website conversions, such as form submissions and purchases;
• Phone calls, from the ad itself, from a number on your site, or from taps on a phone number on your mobile site;
• App conversions, such as installs and in-app actions;
• Offline conversions, uploaded later, for example when an enquiry becomes a signed job.

If you use Google Analytics, you can import events you have marked as key events; our GA4 basics guide explains key events. Google also says to tell users clearly what data you collect and to get consent where the law or Google's policies require it. Our cookie consent guide covers how that works on a site.

The page the ad sends people to

The landing page counts twice: as a factor in Ad Rank and as a component of Quality Score. Send each ad to the page that matches it, not the home page, and make the next step obvious. Our landing page guide covers what makes a page convert, and our monthly website report shows how to keep paid traffic in view alongside the rest.

A checklist

• Conversion tracking is set up and tested before spending, with consent where required.
• Match types are chosen on purpose, and broad match is paired with Smart Bidding.
• Negative keywords exclude searches you do not serve, and the search terms report is reviewed regularly.
• Location targeting and the "Presence" setting match where you actually work.
• The budget is set knowing that daily spend can reach twice the average.
• Each ad leads to a relevant, fast landing page with a clear next step.

Frequently asked questions

Does the highest bid always get the top ad position?

No. Google uses Ad Rank, which combines your bid with the quality of your ad and landing page, Ad Rank thresholds, the competitiveness of the auction, the context of the search and the expected impact of ad assets. Google says relevant keywords, ads and assets can win a higher position at a lower price.

Is Quality Score used in the auction?

No. Google describes Quality Score as a diagnostic tool, rated 1 to 10 per keyword, and states it is not an input in the ad auction. Its three components, expected clickthrough rate, ad relevance and landing page experience, show where your ads or pages could improve.

Which keyword match type should I use?

It depends on how much control you want. Broad match reaches the most searches and Google says to pair it with Smart Bidding; phrase match shows ads on searches that include the meaning of your keyword; exact match gives the most control but reaches the fewest searches. Add negative keywords for searches you do not serve.

Why did I spend more than my daily budget?

Google allows actual spend on a single day to reach up to twice your average daily budget, which it calls overdelivery. Over a month, you are not charged more than 30.4 times the average daily budget, so the budget works as a monthly average rather than a daily cap.

Do I need conversion tracking?

Without it you can see clicks and cost but not which keywords lead to enquiries or sales, and Google's conversion-based bid strategies need it. You can track form submissions, purchases, phone calls and offline sales, and import key events from Google Analytics. Get consent where the law or Google's policies require it.

Want landing pages your ads can send people to, with analytics in place from launch? See our website development service and all our services, or email info@creahive.com.