SEO

What Google AdWords’ Ad Rank Update Means for Your Business

adrank meme adwords What Google AdWords’ Ad Rank Update Means for Your Business

This week, Google announced a significant AdWords update: Ad Rank, the system for ordering competing ads on search results pages, now takes into account the anticipated effect of your ad extensions and formats.

To date, Google has considered only your max CPC and Quality Score as part of the Ad Rank algorithm.

Now, ad extensions and formats play a role in where your ads show on SERPs. The projected effect can be the factor to push you past your competition, if max CPC and Quality Score are equal.

Why the Emphasis on Ad Extensions and Formats?

Google has concentrated heavily on building out ad extensions this year, most recently with the additions of review extensions and image extensions in June, and  a mobile-friendly/multi-screen update in August.

Extensions are useful for making ads more useful and interactive; they allow you to share more information in different ways and can make it easier for potential customers to connect. Click to call ad extensions, for example, can be a great thing for local businesses. Google shared research last month that shows 70% of mobile searchers call a business directly from search results.

If you haven’t found a use for ad extensions, you’d better find one quick, because Google’s quiet rollout of the Ad Rank update has a greater impact on all advertisers than one might think – even if you’re not using extensions!

So What’s New With AdRank?

Oh, you know, not much… except that this update means you might actually be penalized for not using ad extensions and your competitors have greater opportunity to influence your CPC.  So, there’s that.

See, using ad extensions raises your CTR and Quality Score, effectively reducing your CPC. The formula to determine what your actual CPC is factors in the Ad Rank of your competitors—if they use ad extensions and see a boost in their Ad Rank, your ad position goes down and your CPC goes up.

the adrank formula in adwords What Google AdWords’ Ad Rank Update Means for Your Business

This sounds like a great opportunity for a competitive edge, right? If you’re on the ball, have implemented ad extensions and understand how they work, you can effectively influence not only your own campaign performance, but the cost of your competitors’.

Except the way in which Google implemented this change makes their entire advertising pool a sea of winners and inevitable losers. Rather than encouraging advertisers to adopt ad extensions, they’ve made it so that those who don’t may be unwittingly penalized.

adrank meme What Google AdWords’ Ad Rank Update Means for Your Business

Remember that the Google AdWords auction is just that: a real-time, living, breathing auction. Your CPC (note, this is not your max CPC bid, but the actual price you pay) is influenced by what other people were willing to pay for their click. Their ad rank divided by your quality score, plus one cent, is your CPC.

Simply, if your competitors are using ad extensions and you’re not, this change affects you.  Ad Rank affects both your ad position and the cost per click of your nearest competitor. When you are that competitor to someone else, you are affected.

What Can You Do About The AdRank Change?

The update has already rolled out; there’s no grace period here for advertisers to figure out all the nuances of this change and how it may impact their campaigns—and ultimately, their business. This is concerning, especially for SMBs who may already be struggling to keep up with the multitude of AdWords changes this year.

Ad extensions are no longer optional. Yet despite Google’s forced migration to enhanced campaigns, I estimate that as of today, only 1 in 20 small businesses use a click to call ad extension.

Here is what you need to understand and implement moving forward:

  • Expect average CPCs to increase.  As more advertisers adopt extensions, people will have higher average ad ranks. Since your cost per click is directly proportional to the ad rank of your nearest competitor, chances are that CPCs will go up.
  • Watch for less room for organic results in the SERPs. Where is Google going to put all these ad extensions when everyone has them? Expect to see the space occupied by paid advertising further expand into organic territory.
  • Keep a close eye on your campaigns. You’re already optimizing several times a week… right? Probably not, but ideally, you want to be aware of changes in your ad positioning and CPC as soon as possible. You’re now more vulnerable to the market than ever before.
  • Find the extensions that make sense for your business and campaign. The click to call extension might not make sense for you, but maybe discount offers or a location extension does. Get to know Google’s various ad formats and extensions and test out those that seem logical to find the right fit.

The moral of the story is: using ad extensions will raise your Ad Rank, CTR and Quality Score, which reduces your CPC and improves your ad positioning. Remember though that if your competitors are also using ad extensions, that has an effect on your campaign. All other things equal, is that a cancelling out effect, or does one retain an edge over the other? That remains to be seen.

What do you think of Google’s updates to the Ad Rank algorithm? Share your comments below.

 What Google AdWords’ Ad Rank Update Means for Your Business
Larry Kim is the Founder/CTO of WordStream, a provider of PPC Management Tools.

Comments are closed.

12 thoughts on “What Google AdWords’ Ad Rank Update Means for Your Business

  1. Great article!

    My question that I’m curious if anyone even knows yet…. say you are only using call extensions, and you have them on a scheduled basis from 8am to 5pm.. when they are not live, does this hurt your ad rank, or does Google take to into consideration that you do have the extension placed on the ad, it just might not be live at 9pm.

    Curious what people’s opinions are on this?

    Thanks

  2. Hi Larry,
    Everyone knows Call-Extentsion increases CTR and it is directly proportional to Query. I think there is no any type of business who is far from Adwords, so should I avoid using call extension?

    If I have more competitors on Adword who are also using Call Extentsion, I spend 1000USD per month then how much it would effect on my budget per month?

    1. I think it doesn’t make sense to run call extensions if your business isn’t set up to receive and process calls in an efficient way. For example, suppose your business was 100% online and you didn’t have someone dedicated to pick up the phone – then it would be a frustrating user experience and you’d be better off just not using the call extensions.

      1. What remains to be seen though is if your competitors are using them, this could be harmful to you. And I’m not referring to user experience, I’m talking about it actually hurting your ad rank.

        It will be interesting to see some test data over the next couple months.

  3. It seems like a nightmare to me… Am about to dive into advertising but after reading this just freak me out as I’m in a very competitive niche. I can see all my competitors having ad extensions so which means all of us will have a higher CPC if I’m going in with all these ad extensions as well. Let’s say if I’m already rank #1 on serp, will it affect my campaign or will there be any advantageous over my competitors in terms of ad rank and CPC?

    1. i think that if you use ad extensions, then the various forces should at least to some extent cancel each other out. the big issue is when your competitors use extensions and you don’t for whatever reason.

  4. 1. This is why AdWords campaign management should be left to the ‘specialists’.
    2. It was only a matter of time. And of course Google would emphasize the importance of relevance and quality. Haven’t they always?
    3. It’s actually a useful update, if you think about it. But it would be nice if, every once in a while, changes and important updates such as these would not come without at least a little prior mention. It sometimes seems that these updates just… happen and you – the marketer/ advertiser – are just left wondering why your Avg CPC just increased for no apparent reason at all.

  5. Common sense has got to prevail.

    Google has always rewarded those advertisers who stick with advertising without cherry picking the time of day and day of week.

    If you have click to call set up for office hours then find an alternative for when you are not working and use automation to run the two in tandem.

    Google tried to get people to adopt mobile quickly, advertisers didn’t. So they introduced Enhanced Campaigns and made it mandatory and only the smart advertisers could work out the differences and turn mobile ads off if they had a poor user experience.

    This looks to me like Google forcing advertisers to adopt the extension or pay more, but in my humble opinion sometimes you have to accept your fate and work your numbers. In a lot of cases our tests of sitelinks on vs. sitelinks off show that off can be better than on, but YMMV.

  6. There’s nothing we can do about the Ad Rank updates, just embrace the changes my friends. I’m sure it will be a better environment for every advertisers.

  7. Hi Larry,

    Thanks for the article. I have two questions:

    1When you are competing with another ad for position 5, so without any chance of extensions being shown, will google take into account the Extensions for your ad rank?

    2 Coudl you tell anything on the effects of the QS levelling out the possible rise in CPC?